And the good news is that it doesn’t require anything more than what you mustn’t have already put yourself through.
All you’ll need is proper planning, some negotiations, and-voila-you can sweep your way out of the debt zone.
Like most things in life, planning comes into play only when you have a goal to direct it towards.
To get the desired results out of your negotiations you need to first choose a plan that fits your best.
The 5 basic arrangements are as follows:
Say you have a credit limit of $4000 but have a balance of $6000 with interest and late fees, you can choose to go back to the principle and get a reduction if you pay it off.
You must make sure that you get the confirmation in writing that the lump sum that you’d pay will satisfy the bill. You must also understand that paying less than what you owe impact your credit score depending on how the payment is reported to the credit system.
Also, tax law considers most forgiven debts as income so make sure you hit it right with the lenders.
Under this arrangement, the bank may eliminate or lower both, your interest rate & minimum monthly payment. To further reduce your balance, you can ask the company to forgive past punitive fees, which it may or may not do. Again, depending on how the issuer reports the arrangement, your credit score will be affected.
This arrangement can work-out when your financial problems are only temporary, such as a medical event. It’s like ‘Workout Arrangement’. The credit card issuer may eliminate or lower your interest rate and put a halt on late fees. Depending on how convincing your negotiation is, the issuer may even agree to let you skip payments until you’re back on financial track.
There are nonprofit agencies affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies that exist for the sole purpose of negotiating your case with the creditors, in case you don’t want to do it yourself. You will have a counselor allotted to you who will need an account of your situation and your arrangements regarding your plans to repay. The counselor then will work with the lender to restructure your debt to make it affordable for you.
In this arrangement, you stop paying your creditors for months, until they are ready to accept a lower payment. This arrangement should typically be your last resort; right before you are going bankrupt. You can either do the negotiations yourself or have the for-profit debt settlement companies do it for you.
This settlement is sure to leave a dent in your credit history. Hence paying a portion of what you owe, if you can, is better than paying nothing at all.
If you use a debt settlement firm, be aware that you do not have to pay upfront for debt settlement service (Yes, you will have to pay the commission).
According to a Federal Trade Commission, rule debt settlement companies are banned from collecting advance fees from consumers before settling or reducing the consumer’s credit card or other unsecured debt.
Like many things in life, all these arrangements come with their own share of downsides. The key is to be fully aware before opting for one arrangement. We shall soon update you on ways you can strike a good negotiation.
Until then prepare a plan, do some research and ignore the urge to make that first phone call to your lender. Though early intervention is the best, an unprepared one will spell havoc.