Is Debt Consolidation the Right Type of Debt Relief Program for You?
If you’re struggling to keep up with repayments on your current debts, you may have considered whether debt consolidation might benefit you. The whole objective of debt consolidation is to roll all your outstanding balances into one convenient loan amount.
The benefits of consolidating your debts can be great for some people. You may get the advantage of lower interest rates or cheaper monthly repayments. Some people may even find they have the opportunity to repay their entire debt balances years sooner.
What many people don’t realize is that the attractive interest rates advertised by banks are usually reserved for those customers with excellent credit. If your credit score isn’t great, chances are you’ll end up paying higher interest rates, which could mean you don’t save any money at all.
If your primary goal is to reduce the amount you have to spend out of your pocket each month to repay your debts, there are times when debt consolidation may not be the right solution for you. In fact, many people may benefit more from a different type of debt relief program altogether.
Debt Relief Negotiations
Trying to keep up with your monthly repayment obligations when your financial situation has changed can be a nightmare. If you default on your payments, your credit score is negatively affected. If any of your loans are secured, you could also lose your personal assets if your loans are in default.
Some banks and financial institutions will happily negotiate debt relief payment terms to assist customers during times of financial hardship. If you call your creditors and let them know your situation, some of them may agree to payment terms that could ease your budget stress until you find a way to improve your financial circumstances.
If you’ve already fallen behind on your repayments, your chances of being approved for an unsecured debt consolidation loan are slim. Even if you can verify that your monthly repayments will be cheaper and your interest charges will be lower, the lenders usually won’t approve a loan application for a client with average credit scores and accounts with past due payments showing on the statements.
Is Debt Settlement a Better Solution for You?
Of course, some creditors aren’t willing to negotiate with customers at all or only offer short term band aid solutions. Many creditors will simply refer your file to a debt collector to recover their money.
Debt collectors often use aggressive tactics and can make it even harder for you to repay the amounts you owe. What’s more, your original creditors will already have charged late payment fees. Some may also charge penalty interest, which increases your debt levels even further.
In order to really get out of the credit trap and end the constant harassment from creditors and debt collectors, it may be worthwhile for many people to consider using a professional and accredited debt settlement company instead. Most creditors will be glad to negotiate a settlement, if it means they’re getting some of their money back.
The key to a successful debt settlement negotiation is to consider your own personal financial situation carefully. Be honest about what you can realistically afford to repay over what time frame and take the time to calculate what impact your negotiations might have on your financial situation.
When negotiating with creditors you should seek a mutually agreeable settlement based on your budget and hardship situation. For example, you might have an original debt balance of $6,000. However, you might have an additional $500 worth of penalties and fees as well as an extra $1,200 worth of interest on top. Your total debt owing is now up to $7,700.
Calling your creditors and negotiating a settlement for 30-60% of the current balance could mean you repay much less debt overall. Be sure to advocate for terms that are comfortable for your situation, as you still need to ensure you pay back the debt amount you’ve negotiated and always get any deal you strike in writing.
If you’re not confident about negotiating for a settlement agreement on your own, feel free to reach out to us for assistance. Our well-trained professionals will happily do all the negotiating on your behalf, which usually means a huge amount of debt and stress relief for you in the end.