Integrated Family Community Services 3370 South Irving Street, Englewood, CO 80110-1816 Ph: 303-789-0501

How to Settle Your Debts and Get Financially Stable

It’s easy to get in financial trouble in today’s world. Credit is often available at the drop of a hat, and the extremely poor interest rate for savings makes it hard to leave money sitting in the bank. Finally, it’s easy to assume that you’ll find a way to pay off something you want later, so you can buy it right now.

What is Debt Settlement?

If you’re struggling to pay the minimum or considering bankruptcy, debt settlement or debt relief can give you a break from the pressure by negotiating with your lenders. That being said, there are debt settlement pros and cons to consider before you sign up.

On the plus side, your debt settlement representatives can lower your total debt, stop the phone calls, and allow you to get back on track. You’ll be set up with a single monthly payment that you’ll need to make for up to three years.

A negative you may face is a lower credit rating for a time, though you may already be struggling with that. Additionally, you may be charged a fee if you wind up using the debt settlement negotiators and signing up for the plan.

Debt Settlement Vs. Bankruptcy

If you’re so upside down you’ll never catch up, bankruptcy may be the only option. Don’t take this step lightly, as it may impact your ability to borrow for years to come. However, if you’re facing crushing medical debt or unable to earn enough to manage a reduced payment plan, bankruptcy may be the only option.

Before you seek help from a debt settlement organization, seek out help from a free or not-for-profit credit counseling service. If you don’t qualify for credit counseling, you probably won’t get the help you need from a debt settlement service. Credit counselors will tell you if bankruptcy is the best option.

Debt Settlement Vs. Credit Counseling

While debt settlement may provide you some relief, it doesn’t really help you to understand the source of the problem. A credit counselor will guide you through what you owe, how you got here, and how to avoid getting in a similar situation.

Credit counseling takes longer to work through your pile of debt. Additionally, you’re forced to cut back to only one credit card while in credit counseling, and you can only use it in a crisis. While debt settling can help you get back to your new normal, credit counseling will force you into a new way of thinking about money. If you’re not ready to start thinking of money in a new way, you may come to resent credit counseling.

Student Loans

A common form of debt that can cause years of financial pain is student loan debt. This debt cannot be discharged in bankruptcy and is nearly impossible to negotiate your way out of, even with the help of a debt settlement team. If you’re in student loan trouble, talk to your lenders about deferment, forbearance, or consolidation.

One of the biggest hassles of dealing with student loan lenders is that they are protected against bankruptcy loss. They don’t have to work with you in order to get some money out of you, so stay calm and play nice. You may have to apply for several forms of relief before you can get help reducing your student loan payments.

On Your Own

There are things you can do on your own to lower your payments. For example, if you have a car loan, try to refinance it for a lower payment at a longer term. Put the extra money into a debt snowball plan or a debt avalanche plan.

Debt snowball: List your debts by total owed. Make the minimum payment on everything but the smallest debt. Once you wipe it out, reassess and tackle the next largest debt.

Debt avalanche: List your debts by interest rate. Again, make the minimum on everything but one debt. Put everything extra against the debt with the highest interest rate, then move down the list.

No matter your ultimate financial goals, getting your debt under control is critical to peace of mind and the ability to plan for the future. For now, put a 2 day wait on all spending. Take a good hard look at your monthly subscription fees. Go back to cash to make money real again.

              

Tim Esterdahl

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