What is debt settlement?

Keeping up with the monthly payments related to credit card debts can become increasingly difficult in these times of financial hardship. An individual may completely be unable to clear up their debts and eventually file for bankruptcy. This of course leaves the creditors at a loss since they may not be able to recover the money owed to them from the debt or may recover a considerably lower amount than they were owed. Debt settlement entails negotiations between debtors, who are unable to keep up with payments to settle the debt at a fraction of what they may owe.

Debt settlement negotiations are meant to strike a deal between the debtor and creditors for lower payment rates or to reduce a percentage of the amount owed.  It typically works by creditors agreeing to acknowledge settlement of the payment by extending a onetime payment amount to the creditor. The settlement amount usually adds up to about twenty to seventy-five percent of the balance that is actually owed. When an agreement to cut the debt has been agreed too, this enables the debtor to comfortably meet the payment without having to resort to the declaration of bankruptcy. The creditors benefit from treating the balance as a new payment which in the long run makes them more money than if the individual had forfeited payment by declaring bankruptcy.

Debts settlement programs are made in relation to unsecured loans; loans which were acquired without collateral security. Since these loans are taken without collateral, they pose a high risk to the creditor in the event that the debtor cannot meet the payments. Secured loans on the other hand are a little bit risk free since the creditor can easily seize the collateral, which are usually assets or other property, to recover back the loan.

Generally, that is why unsecured loans carry higher interest rates as opposed to secured loans. The types of debts you can include are credit cards debts, unsecured loans, collection bills and even hospital bills. Mortgages, auto financing and student loans are not considered valid debts by the debt settlement programs.

The debt settlement payment plan as with every other payment plan out there is not for everyone. It is designed for consumers whom cannot meet the monthly obligations for their credit card or collection debt. If your struggling financial hardship, this solution may be in your best interest.

As a person who is deeply rooted in debt, it is wise to seek proper financial counsel before opting for a debt settlement plan. It is wise also to look deeper into the companies offering debt settlement plans and understand what the implications in entering the settlement plan with them will entail. Such companies usually have hidden charges in relation to their services meaning that they also deduct a percentage of the settlement amount from the amount set aside to honor the settlement agreement with the debtors. There are always other solutions to clearing up debts without involving third parties in this instance debt settlement companies.

Are Debt Consolidation and Debt Settlement Same Thing?

While they both work to get you out of debt - they are in fact two distinctly different processes. Debt consolidation works to lower you interest rates by basically transferring your debts over to a new single loan with better interest. A popular alternative to consolidation is known as debt settlement or debt negotiation, which works by actually reducing what you owe to creditors.

With debt settlement, a third party negotiates with your creditors on your behalf to reduce what you actually owe in balances. It works similarly to debt consolidation, but the company that arranges the settlement does not 'buy' your debt, they just negotiate better payment terms and interest rates - then collect money on your behalf to divide up amongst your outstanding creditors.

Certain companies and organizations will offer both services. Debt consolidation loans usually call for collateral (a good option for homeowners), whereas debt management services can often be acquired with little or no collateral. It should be noted that you will get a better rate if you have collateral.

Some good advice is to shop around and see what solution is best suited for you. Go with whoever can get you the lowest monthly payments and best payment terms. It may not always be the same company, depending on your situation and what options are available to you. Most companies are happy to give you more information and/or no-obligation quotes online so you can compare which company works best for you.

How I can afford my credit card monthly payment

I cannot afford my credit card monthly payments and also struggling to pay my credit card monthly repayments. My experiences, this is a common problem with everyone. If you also struggling with monthly credit card repayment you can try to save money by using following tips.

Switching to an interest free credit card: This can help you can back on top of your credit cards, especially if you are struggling with a high interest rate card.  Some credit card companies are still offering 0% interest on balance transfers; this means once your credit card debt has been transferred you won’t pay any interest for the term of the 0%.

This works well as long you can afford to clear the balance within the interest free period.  Once the interest free period ends the interest rates can suddenly increase to a high amount.  Also be aware of any transfer fees.

Clear the credit card with the highest interest rate first: If you have more than one credit card, compare the interest rates you are paying.  If you are currently paying more than the minimum payment to each credit card, then consider only paying the minimum monthly payment on the cheapest cards whilst paying as much as possible to the highest interest rate card.  Once you have cleared one card, move on to the next highest interest rate credit card.    This will only work if you can afford to pay more than the minimum payment each month.

However, the advice above will only help if you have a good credit history which will allow you to get a new credit card and you can afford more than the minimum monthly repayments.

If, like many others, you have many credit cards or other credit commitments such as loans, it would be best to get independent advice on the best solution for your credit card problems.  Phone us today and we can offer advice on how to manage and find a solution for your own debt situation.