Debt settlement is a very significant financial undertaking. It has the potential to radically effect your financial situation. If it works out well, you can write off alot of debts, reduce your monthly payments, reduce stress and in the long run lead you to being free of debt.
1. Prepare accounts.
The first step is to become aware of your financial situation. You need to make a list of all your various debts, credit cards and loans. Work out the interest rate that you are paying on each loan. Don’t be put off through fear of finding the true extent of your debt. Although it is tempting to sweep your debts under the carpet, you will probably find that knowing your real situation gives you more peace of mind. If you are unsure of your situation, the uncertainty will create more stress than you may imagine.
2. Investigate different options available.
Debt settlement is not necessarily the best option. For example, is it possible to consolidate your debt through remortgaging. The disadvantage is that you will not be able to reduce the total amount of your debts. The advantage is that the interest rate will probably be much lower and you credit rating will not suffer.
3. Check what will happen to your credit rating.
The effect of debt settlement on your credit rating is important to bear in mind. Firstly, if your credit rating is already very bad it is unlikely to get much worse through debt settlement. A good debt settlement should make sure that your creditors agree to say that "your debt is settled in full", this is not the same as "paid in full". It may impact on some lenders, who will become less willing to lend to you in the future. However, on the positive side, your debt is reduced (which helps improve credit score) Also, settled in full, is far better than missing payments. If you are close to bankruptcy and struggling to meet payments, you should not worry about the effect on credit rating of a few "settled in full" See also: Debt settlement and credit rating
4. Consider carefully the new debt repayment options.
The debt settlement company will arrange a new monthly repayment schedule. The benefit is that this is a single repayment option. This makes it easier to manage, but, can you afford the new monthly repayment? Also, check on the interest they are charging and how much they are able to reduce the debt by. It is a growing market, so it is quite competitive.
5. Life Beyond Debt settlement.
Debt settlement is only part of the solution. It gives a chance to reorganise your debt, but it does not tackle the root cause which is why the debt occurred in the first place. After you have gained a debt settlement think about how you can reduce the source of debt. Consider ways to reduce unnecessary expenditure. Look at ways to gain extra income.