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Should I try to settle myself, use a lawyer, or a specialist company?

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This is the question that most debtors ask themselves when trying to figure out the best way to go about clearing their debt. Each situation is different and the circumstances of your debt will determine whether you will have to settle by yourself or if you will have to hire the services of a lawyer or the services of a specialist company. Debt settlement is a situation whereby you negotiate with your creditors, using lawyers or specialist companies or by yourself, to have the amount owed reduced. Before considering how to solve your debt issues, please first read our debt consolidation myths page.

Hiring a lawyer will come in handy when you need someone to analyze your situation and give you legal advice that is practical.

Hiring a lawyer will come in handy when you need someone to analyze your situation and give you legal advice that is practical.

Hiring a lawyer will come in handy when you need someone to analyze your situation and give you legal advice that is practical. A lawyer will be able to advise you if you will have to settle your debts or file for bankruptcy, depending on your situation. Also, should the creditor sue you, a lawyer will be able to defend your case in court. Ensure that your attorney is licensed and one who values integrity by upholding the ethical standards.

You may opt to use a company to help you to consolidate your credit card debt or for payday loan help and make the process of clearing debt easier although this is completely unnecessary. The debt settlement companies require that you pay them a monthly amount while they negotiate with your creditors. The amount that you pay is then divided into savings that will be used in paying off your debt as well as the service fee charged for the work they are doing on your behalf. When you have a number of credit card debts, you may opt to take a credit card consolidation loan and worry about one payment. When you consolidate credit cards, you will be able to get the lowest interest rates and benefit in making lesser payments over time as compared to paying the credit card debts individually. The debt consolidation companies will be able to advise you on how to consolidate credit card debt. This will enable you to sort your finances as there will be no more hassle of making multiple credit cards and debt payments and you will be able to possibly increase your cash flow because bill consolidation reduces the monthly expenses.

Choose to settle yourself,

Choose to settle yourself,

You may opt not to hire the services of a lawyer, specialist companies such as a debt settlement company or to settle for debt settlement so as to get credit card debt relief. This may be because you are wondering how you may afford such services yet you are already struggling with your debts. Should you choose to settle yourself, you will have to equip yourself with the knowledge and laws related to debt collection. It is better to do debt settlement by yourself when you are certain that this is the choice that you will settle for and if your creditors are yet to start suing you for the debt owed.

While considering debt settlement, the option that you will settle for depends on your financial situation. Also, while you may hire the services of a lawyer or specialist companies, be sure to get legitimate ones so that you may not end up losing your money to scams.

The effect of debt settlement on credit score

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The common myth is that a debt settlement has no effect on a debtor’s credit score. Contrary to the myth surrounding debt settlement, debt settlement may affect your credit score. However, the impact may be negative or positive, depending on various conditions that may be in the present or future instances. Your credit score reflects if you have paid the debt owed as per the original agreement with your lender. A debt settlement, on the other hand,

Common myth is that a debt settlement has no effect on a debtor’s credit score

Common myth is that a debt settlement has no effect on a debtor’s credit score

negates or modifies the credit agreement. Therefore, this will possibly affect your credit score and a potential creditor will take note of the accounts that were closed by your previous creditor closed an account due to such changes brought about by debt settlement. The following are some of the factors that influence the impact that debt settlement has on your credit score:

  • the present condition of your credit
  • your creditor(s)’ reporting practices
  • the amount of debt being settled
  • if your settled debts are in good standing at that moment
  • reduced amount by which the original balance of the debt was settled for.

However, in some instances, it will be beneficial to settle your debts. This is when you factor in the opportunity cost of not having debt settlement and having your credit score affected. An example of this is when you have a situation in which you continuously submit payments late or default on the payments. Therefore, it would be better to have a payday loan debt settlement company assist you in sorting out your financial issues as not doing so in the present will lead to a bad credit score in the future. Debt settlement programs aim to reduce the amount of debt attached to your name and in so doing, this will be able to assist you if your credit score is already lowered due to late payments. Settlement of debts may be the much needed relief that you will need to manage your finances.

Debt settlement is suitable for large amounts of debt

Debt settlement is suitable for large amounts of debt

A point to note is that debt settlement is suitable for large amounts of debt. This is because the larger amounts of debt have a greater impact on your credit score. If you settle the smaller amounts of debt when you have a larger amount of debt, this debt settlement will negligibly affect your credit score. Therefore, when you feel that you are stuck in your finances and would like to improve your credit score, you will need to consider the factors that influence the impact that debt settlement has on your credit score as well as the opportunity cost of not having a debt settlement program.  At times, it would be better to have your consumer credit report reflect a debit account as ‘paid-settled’, especially if this will do away with severe delinquency.

How to negotiate with a debt collector

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Falling behind your payments for a credit card debt

Falling behind your payments for a credit card debt

Falling behind your payments for a credit card debt or any other type of loan is never pleasant. You might also have a debt collector who is also on your case and constantly following up on the progress of your payments. It can be draining to receive constant emails or calls from your debt collector yet you are already trying your best to clear the credit card debt. So, how can you negotiate with a debt collector so as to be relieved from such situations?

You’ll have the option to use a company to get you payday loan relief, or if you prefer DIY then here’s how to do it:

The important thing in such situations is working on improving your credit score. You could do this by negotiating with your debt collector and have them report your debts in a certain way. This will enable you to have a credit report that does not have negative information. Therefore, you will be in good standing when a potential creditor views your credit report in the future.

The other option that you have is to offer to make monthly payments. However, before doing so, the debt collector may have you fill out a statement, declaring your income, expenses and assets. Ensure that you give out information that is true because false information may do more harm to your case, if you are signing the papers under the penalty of perjury. Also, you may give information that may work against you, so be cautious of what information you will provide. You should ensure that the monthly payment does not strain your finances and you will be able to cater for your other expenses and bills comfortably. Ensure that you have written agreements with your debt collector after you are done with the negotiations.

If you can afford to make a lump sum payment, you may negotiate for this with your debt collector. You have to set a

Lump Sum Payment

Lump Sum Payment

specific amount that you are willing and able to buy and stick with it. Do not agree to pay a lump sum that amounts to more than what you are able to pay off at that time. This is because a debt collector may assume that since you are willing to pay a lump sum amount, you are able to pay off the debt with an amount higher than that which you have suggested. Most creditors will settle for half the amount that you owe them, whereas others may want 70% to 80% of the amount owed. In cases where the debt collector thinks that the chances of you repaying the debt are minimal, they may settle for a third of the amount owed or less.

Negotiating with a debt collector is beneficial for you and the creditor. This is because you will be able to settle the debt with less pressure and they will achieve their objective of maximizing their returns. The debt collector will be pleased if you are willing to pay back a percentage of the amount owed. However, you need to consider your financial situation and not promise what you cannot deliver. This avoids the vicious cycle being continued as you may get from one debt to another. Be realistic when negotiating with your debt collector and you may just turn around your financial situation for the better.

When will credit card companies settle and when not?

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It is possible to settle debts yourself or by using the services of a lawyer or a payday loan consolidation company. You may also choose the option of debt settlement so as to clear your loans. However, it is not always expected that the credit card company will agree to credit card debt settlement as a way to clear the debt. You need to be familiar with the circumstances that may be considered for debt settlement and those in which debt settlement will not be agreed to by credit companies.

Instances when credit card companies can settle:

Instances when credit card companies can settle

Instances when credit card companies can settle

  1. If you are almost bankrupt and you have been delaying on making the payments, but you are willing to make a lump-sum payment. Your credit card company will agree to settle in such a situation, even for half the amount owed, as this will be better than not receiving any money at all.
  2. If a debtor encounters hardships such as permanent job loss, the credit card company may agree to lower the minimum payment amount. This is if the debtor communicates with the credit card company and explains his or her situation to them.
  3.  If you are a new credit card holder, the credit card company may offer to waive the annual fee that is due in the first year. To the credit card company, this can be overseen as they would like to retain you as a client.

 

 

Instances when credit card companies cannot settle:

  1. If you have been a card holder for a number of years, the credit card holder may not easily waive the annual fees that are charged to your account.
  2. If you have been in the habit of making late payments, your credit card company may hesitate to offer you a debt settlement agreement. This is because a new agreement will cancel the previous one, which was not being acted upon duly by you.
  3. If your situation does not justify the hardships that qualify for debt settlement, you may not benefit from getting credit card debt relief. The creditor will assess your situation and if it is found that you still have a steady flow of income and are able to pay off the amount owed after sorting your monthly expenses and utilities, you may probably not get debt settlement.
bankruptcy-worksheet

Filing for bankruptcy is not necessarily

As you can see, filing for bankruptcy is not necessarily the best option if you would like to get out of debt. If your conditions are those that may be considered for credit debt settlement, approach your creditor and explain your situation to them. Be polite but persistent in your approach, as there is a possibility of your request being rejected. Debt settlement is a better option and solution to avoid having your credit score affected should you fail to pay amounts owed over a period of 180 days. Remember, you have got nothing to lose by making your request but you may stand to lose it all if you hesitate on getting credit card debt settlement. Keep your records well as this will enable you to have the numbers on the tip of your fingers and present your case better.

Myths about credit card debt settlement

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There are various myths that surround credit card debt settlement. A debtor may not tell apart the truth from these myths that are often told. The following are some of the myths associated with getting out of debt and the truth about credit card debt settlement:

You Need to pay someone so as to get yourself out of debt

You Need to pay someone so as to get yourself out of debt

Myth 1: You need to pay someone so as to get yourself out of debt.
Fact: This is not often necessary in some instances. There is an increase in the number of debt settlement companies that are scams. Do yourself a favor and avoid losing more money to such scams. The situation is only well understood by you and you can negotiate the debt settlement terms for yourself. A debtor will put in more effort to get out of debt than one who is hired to do this. However, it is agreed that in some instances, it will be advantageous to have a negotiator or a payday loan debt settlement company.

Myth 2: An individual’s credit score will not be hurt by credit card debt settlement
Fact: Settlement of debt, just like bankruptcy can affect your credit score. Although debt settlements and defaults may not influence your credit score if they are not reported, this is just a temporary situation. The truth of the matter is that debt settlements are normally reported, eventually.

Any individual with a good reason can get their credit card balance slashed into half

Any individual with a good reason can get their credit card balance slashed into half

Myth 3: Any individual with a good reason can get their credit card balance slashed into half
Fact: There are underwriting criteria that are looked into so as to enable a debtor to have his or her credit card balance halved. Debt settlement companies and creditors will conduct a thorough screening to prove that one is experiencing the hardship that meets the underwriting criteria. A debtor experiencing hardships such as a divorce, temporary job loss and medical problems may get debt settlement.

Myth 4:  The debt will stay forever if I do not settle it
Fact:  There are statutes of limitation in each state that limit the duration in which debt collectors may file lawsuits over credit card debts that are yet to be paid. Therefore, if a debtor has an unpaid amount over a number of years on a charge account, such a debt is not legally enforceable. This is because at such a point, the payment to be made will be considered voluntary and not in a debtor’s interest as negates the argument of the credit card debt collection limitation.

Myth 5: Filing for bankruptcy or getting debt settlement are my only options when I am unable to pay the credit card debt.
Fact: These are options that are extreme, which may lower your credit score and you have other options such as getting forbearance. This is a situation whereby you may still be charged an interest on your loan, but you will be allowed to make payments in smaller amounts or to make no payment at all. Instances such as a job loss are considered for forbearance.

These are just some of the myths about credit card debt explained. However, if you find it challenging to settle your debt, do consider managing your finances well and be well informed on the options available to you.