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Debt Settlement

Debt Settlement / Negotiation Vs. Debt Consolidation

If you have been spending more than you are earning, then you are likely over your head in debt – most often credit card debt. This may seem like a black hole, but there are ways to escape, perhaps even with your credit and possessions intact. You may need a little help, and you will certainly need a great deal of willpower, however it is possible to turn your spending situation around and get out of debt. 

One of the first things that you need to consider and decide is whether you will use debt consolidation or debt settlement to get out from under your heavy load and take a little bit of control again. The things to consider in making this decision are whether you need immediate relief, or whether you can wait just a little longer to see your debt decrease, and the results that you want to see on your credit score. If you want to keep your credit score from tanking, then you should be prepared to stick it out for the long run and consolidate your debt. If you need immediate relief, then you should look into debt settlement. 

Debt settlement, unlike consolidation, should not be handled by an outside company. Many debt settlement companies are scams, and even the ones that are not do not always work as hard as possible in your best interests. Debt consolidation can be handled at home on your own as well, but it is easier and often just as beneficial to go to a debt consolidation service for help. 

If you have decided to go the route of debt settlement, then your accounts are likely in danger. This process requires negotiating directly with the credit card companies to which you are indebted, and most of them will not talk to you until you are anywhere from 60-90 days behind on your payments and if you are not able to make payments to your other debts as well (they can and will check your credit report to find out). 

If this fits your situation, then call your credit card company and ask to negotiate to settle your debt. Don’t be afraid to make an offer first, and don’t forget to ask them to stop penalties and late fees to help you get rid of your debt. They would rather have a partial return on their money than lose out altogether, so you have the upper hand in that respect. Many companies will negotiate for as little as 50% of your original debt, allowing you immediate relief.

This does not mean that you are immediately free, however. You will still have to make payments on the rest of your debt, and you will probably have to pay taxes on the amount that your debt was reduced by since the government considers this a “cash gift” and therefore subject to taxation. Your credit score will also reflect your debt as “settled” instead of “paid as agreed”, so your score will suffer for a while. On the plus side, you will have made an effort and pulled yourself up out of debt. 

Debt consolidation is easier to understand. You can use a credit card or lender to consolidate all of your debt on your own, meaning you are making one (hopefully lower) payment instead of two, five, or ten, however this can also prove complicated in execution. You can also contact a debt consolidation company. They negotiate with your creditors, and accept your payment to them. They then distribute your lower payments to your creditors, usually keeping a cut for themselves. This process will take longer than chopping your debt in half will, but it will also keep your credit score intact.

However you choose to act, the power is in your hands to get out from under debt and get back on your feet. You will have to be careful in the future to avoid new slips, but you can get yourself out of debt.

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