Most people do not start out in life with the intention of getting deeply in debt. Although careless spending is certainly one reason for the staggering personal debt problem in this country, more people than not are in debt due to circumstances that they could not foresee. Perhaps the main breadwinner of a family lost a good-paying job, a family member become seriously ill or a divorce in the family caused overwhelming financial problems. If you find yourself stressed over being in debt, regardless of the reason, you should know that many resources are available to help you get your financial footing back, including debt settlement.
What Is Debt Settlement?
This process, also referred to as loan forgiveness, helps people get out of debt faster by getting creditors to legally accept less than what is owed to them. The way debt settlement works is when a creditor agrees to accept a lesser payment on your account to consider it closed and paid in full. Creditors are often willing to accept an arrangement if your account is severely past due or if you can provide an adequate explanation of how you ended up in your present circumstances. You may approach each creditor yourself, or you may contact a credit counseling firm to do it for you. With the latter option, you have the benefit of having skilled negotiators working for you and are less apt to be intimidated by angry creditors who want their money.
The Debt Management Plan
Entering a debt management plan (DMP) requires the assistance of an outside third party, typically a consumer credit counseling agency. To begin participation in a DMP, you first meet with a counselor to go over your debt, income and living expenses. Together, you will decide on a reasonable figure that you can commit toward debt repayment every month. The counselor contacts each of your creditors to obtain their permission to be included in the DMP. If they agree to participate, they will receive payment directly from the agency each month instead of from you. The agency you work with will inform you as to how to get your monthly payment to them.
Is Debt Settlement For You?
Debt Consolidation Loan
This method of settling your debt involves taking out another loan, which may be difficult to qualify for if you already have bad credit. If you own a home or have other valuable collateral, qualification will be easier to obtain. After you have been approved to receive a debt consolidation loan, you are free to pay off your creditors as you see fit.
There are several advantages to a debt consolidation loan, such as making only one monthly payment, the likelihood of lower interest rates and a tax deduction if you used your home as collateral. However, this method will only get you out of debt if you commit to not making any new purchases on credit and focusing solely on paying off your debt consolidation loan.
Choosing What is Right for You
As you can see, there are several good options to help people get out of debt that don’t include filing bankruptcy. To determine which one is right for you, locate a non-profit financial counseling center in your area and schedule an appointment with a certified counselor. He or she will go over your options and help you to reach the best decision possible, whether that is debt settlement or not.