What Are Steps for Debt Settlements?

To manage an overwhelming debt load and make your payments more affordable, you may have to resort to debt settlement. There are a number of steps you can take to settle a debt. Some are more structured than others. When you decide to settle a debt, always examine all possibilities for comparison. Make sure you choose the route that helps you eliminate debt effectively and efficiently.

Review

After deciding that a debt settlement is for you, make a list of all the things that matter, such as an ideal balance, interest rate, monthly payment, terms for repayment and the effect on your credit report. Be prepared to negotiate all of the terms and agreements. Decide if you want to pay monthly or if you have a lump sum of money you would like to pay.

Offer

Debt settlement is for those who have run into a problem with debt. If you can comfortably afford to pay your debts on time, then debt settlement is not for you. Unemployed people with a limited income are often prime candidates for settlement. Call your creditors and let them know your situation. They will probably offer several solutions, including a settlement offer. Once a settlement is made by the lending institution, you should make a counteroffer. They may try to make another offer and you may want to do the same. Let the debt collector know you want to think about it. Chances they will accept your offer.

Debt Relief Company

You can have your debts settled by a debt relief company that helps consumers who have gotten into trouble with unsecured debt. It can help you reorganize and reschedule your debt with creditors. Debt reliefe companies handle the entire process. Many consumers have been able to reduce their debt substantially by settling for 50 cents on the dollar. Settlements can be a lump sum or monthly payments.

Consumer Credit Counseling

When you work with consumer credit counseling services you have another opportunity to settle your debt. Joining their debt management program allows you to pay one lump sum through the program, which then disburses funds to your creditors monthly. You receive lower interest rates and lower monthly payments in the process.

Collection Agencies

A settlement offer can be made no matter what stage you have reached with your debts. You can contact a collection agency or attorney representing a creditor and offer a cash settlement. They will be anxious to receive the settlement on behalf of their client. You may be able to negotiate favorable terms. Settlements can lower your credit score. Most creditors will report this information to the credit reporting agencies. The information will remain on your file for seven years.

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Quick Ways to Pay Off a Credit Card

Quickly paying off a credit card is a simple matter: Just make bigger payments. Simple doesn't mean easy, and you may have to find new sources of income to do it. But financial experts say you can usually swing a bigger amount just by rearranging the way you make your payments. Other strategies also can help you pay off that debt more quickly than you thought.

Change Your Payments

Pay more than the minimum you're required to send. The more you pay, the more is deducted from the amount you owe rather than going to the finance charge. Suppose you owe $3,000 and pay 24.9 percent interest, with a $75 minimum monthly payment. At that rate, it will take 85 months--a little over seven years--to pay off the $3,000. But if you pay $100 a month, the time is cut almost in half: 48 months, or four years.

If you have more than one card, do pay the minimum on all but the one with the highest interest rate. Take any extra money you're paying on those other cards, and add it to your highest-rate account. When the highest-rated debt is gone, take its former payment and apply it to the next-highest-rated card. Financial management experts such as the website Motley Fool call this "snowballing your debt." Money guru Suze Orman recommends it as well.

Find More Money

Look for ways to trim your lifestyle, and apply that money to your bill. Cut back on dining out, especially during lunch hours at work. Buy store-brand instead of name-brand groceries. Reduce or eliminate shopping trips for clothes.

Pay off the debt with savings or investments you can liquidate. Motley Fool recommends this if you're paying much more in card interest than your bank is paying you. But don't cash out emergency funds you have accumulated--you could end up taking on more debt if you lose your job or your car breaks down. Once the debt is paid, use your old credit card payments to build up your savings again.

Get a second job if you must, but dedicate every penny you earn to the card--not to restaurants and shoe stores.

Negotiate With Card Companies

Ask for a lower interest rate. If your credit history is spotty, you probably won't get one. But companies sometimes are willing to give a break to a good customer, especially if the customer has received offers from lower-rate companies. As you get closer to zero debt, and if your payment history stays clean, you may start receiving those offers.

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How Much Will My FICO Go Up Paying All Credit Cards Off?

A FICO score is a measure of an individual's creditworthiness, originally developed by the Fair Isaac Corporation. Those with lower FICO scores are generally required by lenders to take out loans at higher rates of interest to compensate for the greater risk of default.

Features

According to the Fair Isaac Corporation, FICO scores usually are lowered anytime a borrower does not pay back a loan according to agreed-upon terms. For example, a person who misses a payment on his credit card or does not pay the full amount will likely see his score drop.

Effects

Paying off debt on credit cards typically improves an individual's credit score, or at least stops it from dropping. However, because a FICO score is calculated using a variety of factors related to the individual's history, including the amount owed and the number of balances, a precise estimate of how much the score will rise is not possible.

Expert Insight

According to the Fair Isaac Corporation, individuals will raise their score more if they pay down debt than if they move it around or shift it to other cards. Closing some lines of credit but retaining the same amount of debt may actually result in a lower score.

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How to Reduce Debt Without Home Equity

Different debt elimination options are available to help get rid of high balances. Some homeowners choose to tap into their home's equity by means of a mortgage refinance or home equity loan to pay off debts. But what if you don't own a home? Fortunately, having equity isn't a prerequisite to debt elimination. There are several ways to get rid of or reduce your debt without using your home's equity.

Instructions

1

Make a list of your debts. Grab a sheet of paper and write down all your credit card balances and calculate your debt amount. Knowing how much you owe is key to reducing the debt.

2

Determine how much is left over after paying your monthly bills. Subtract monthly expenses from your income to determine disposable income. Monthly expenses include what you spend on rent/mortgage, insurance, food, transportation, utilities and debt payments.

3

Resolve to use your disposable income to reduce balances. Rather than use extra money on luxuries such as hair appointments, dining out and vacations, use extra income to bring down your balances.

4

Increase payments to creditors. Adding extra money to each payment makes a difference and helps you pay off balances sooner. Rather than pay $25 a month on a $1,000 credit card balance, aim to pay $100 a month in order to pay down the balance within a year.

5

Put away credit cards while paying down your balances. It's pointless to pay $100 a month on a credit card and then put new charges on the card. Stop using credit cards altogether to put a permanent dent in your balance. And if you must use the card, pay off the new charge immediately or within a month.

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Christian Debt Consolidation Loans

Christian debt-consolidation loans are almost identical to normal debt-relief programs, in that both types help debtors pay their debts. However, Christian debt-consolidation programs are based on principles of honesty and integrity, giving debtors a heightened sense of confidence in their services.

Prevention/Solution

The best way to prevent the need for a Christian debt-consolidation loan is to manage your money according to biblical principles. There are many verses in the Bible that speak against debt, including Romans 13:8 ("Owe no man any thing, but to love one another: for he that loveth one another fulfilleth the law") and Proverbs 22:7 ("The rich ruleth over the poor, and the borrower is servant to the lender"), among others. Basically, do not get into debt in the first place, and you will have solved your debt problem before it even starts.

Function

The purpose of a Christian debt-consolidation loan is to pay off debts so you can save money and make only one monthly payment. Christian debt-consolidation loans are usually offered at a much lower interest rate than credit cards and other loans. As a result, the debtor makes payments to the Christian debt-consolidation company. These payments are generally smaller, and since the interest rates are lower, the debtor pays off the debt much quicker and cheaper than he would have had he kept the other debts.

Expert Insight

Taking out a loan to pay off your current debt is a good idea if you have learned a lesson about managing money effectively. Christian financial expert Dave Ramsey says that a Christian debt-consolidation loan will only enable a person to go further into debt if she has not changed her spending habits. Instead, Ramsey says a person must change the way she spends her money before she considers looking at Christian debt-consolidation loans.

Benefits

A Christian debt-consolidation loan is a great way to get yourself in line. Working with someone can help you gain better control of your finances. Also, creditors are often much more willing to work with you if they see you are working with a Christian debt-consolidation company. They may give you a break on your monthly payment or your interest rate.

Warning

Many debt-consolidation companies take on the name "Christian" so more people will be attracted to their services. Just because a company has the word "Christian" in its name, however, does not mean that it follows biblical principles. Before signing up with any Christian debt-consolidation loan company, research it online and through the Better Business Bureau. If there are several complaints about the company, find a different one. Also, some mortgage companies look at debt-consolidation loans the same way they look at bankruptcies. If you are considering purchasing a home in the near future, consider other alternatives to help ensure a decent credit score.

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Can I Ask for Validation of Debt & Settlement at the Same Time?

Debt settlement can be a good way to dig yourself out of a financial hole, and debt validation is always a wise thing to do before agreeing to pay a debt. But don't offer to settle a debt until you know that it's yours. If you don't validate a debt before offering a settlement, at best, you might lose some leverage with your creditor; at worst, you may end up paying a debt that isn't yours or that you're no longer legally obligated to pay.

Debt Settlement

Paying your debts in full is the right thing to do. But if the unexpected happens and your income takes a hit, it's easy to be overwhelmed by debt. If making just your minimum payments isn't reducing your debt load quickly enough, you can reduce your debt by offering creditors a cash settlement: You pay them 30 percent to 60 percent of what you owe and they cancel the balance.

Debt Validation

If your original creditor turns your debt over to a collection agency, the federal Fair Debt Collection Practices Act gives you the right to request validation of your debt within 30 days after the collection agency first contacts you about the debt. You have the right to request proof that you owe the debt, as well as the name of your original creditor and the amount of money that you allegedly owe. Because collection agencies sometimes go after the wrong people for debts, ask debtors to pay debts that are no longer covered under the statute of limitations, or claim that your balance is much higher than what you actually owe, validating a debt before you pay it is a smart financial move.

Why Validate First

If you send a letter that simultaneously asks a debt collector or creditor to validate your debt while also offering a settlement, you limit your settlement options and leverage. For one thing, by offering to settle the debt, you imply that it's a debt that you actually owe. But if you're truly unsure as to whether you owe the debt or about the legitimacy of your creditor's accounting, it doesn't make sense for you to offer a settlement until you understand your obligation.

Making Your Offer

Once the debt is validated, you can then make a settlement offer. When you make your offer, keep two figures in mind: One is the most that you can afford to pay; the second is a lesser amount for you to begin bargaining with. If your creditor requests more money after your first offer, you have some cushion to work with. Make sure that you get your creditor's agreement to a settlement offer in writing before you actually send it any money.

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What Do I Do If I Receive a Debt Collection Letter in Tennessee From an Attorney's Office?

If you receive a debt collection letter in Tennessee from an attorney's office, it most likely means that you have already missed some payments on a debt that you owe. Usually, letters from debt collection attorneys specify the size and nature of the debt, along with encouragement for repayment. Depending on your financial situation, you can respond to the letter in a number of ways.

Pay Your Debt

By the time you receive a debt collection letter from an attorney, you are usually pretty close to getting sued. If you don't pay your debt and you get sued, the court will typically issue a judgment against you, requiring you to pay your debt. At that point, your creditor can garnish your wages or possibly seize your property in order to satisfy the debt obligation. You can avoid all of this by simply paying what you owe. Once you pay your debt, you will be able to put all the collection letters and phone calls behind you.

Call the Attorney

If you can't afford to simply pay off your debt, you can call the attorney that sent you the letter to discuss your debt. It is entirely possible that your creditor will be willing to negotiate your debt, especially if it appears that you cannot pay. If the attorney does not want to negotiate at first, you can always call back in a few weeks or months and try again. The longer you don't make any payments, the more likely the attorney may be to negotiate.

Write Back

Sometimes, your best course of action may be to write the attorney back. By writing back, you can demonstrate good faith that you are trying to work out a resolution to your debt situation. This may possible delay any legal action against you. You may also get an offer of a settlement back from the attorney, in which you may be able to pay less than you owe. Be cautious with any correspondence that you send back to the attorney, as anything you put in writing will no doubt be part of your legal file regarding the debt.

File Bankruptcy

If you can't afford even a negotiated settlement regarding your debt, you can always file bankruptcy after you receive a collection letter. When you file bankruptcy, the attorney can no longer legally contact you until after your case. If you earn a bankruptcy discharge, the attorney cannot contact you after the case either, and you will no longer be responsible to pay any amount of the debt. However, filing bankruptcy will mar your credit report for up to 10 years.

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