Many people are experiencing financial problems these days since the economy has taken such a turn for the worse. Every day, you hear of someone else losing their job, having their work hours cut, or having to settle for a job that pays much less than they are accustomed to having. With these types of financial setbacks, it is no wonder that so many people are seeking debt consolidation loans, services, or settlements.
Debt consolidation loans are taken out by people who still have fairly decent credit in order to pay off all of their outstanding loans. They use the loan to pay off their debts, and then have to make only one payment each month to the loan company. The payments they make are usually lower than the payments would be for all of their debts added together because of the lower interest rate. Most large consolidation loans must be secured by some form of collateral. For people who have already experienced a sharp reduction of their credit score, these loans may not be possible to secure.
Debt consolidation services are used by people who want their interest rates lowered on all of the debt they already pay. Many financial agencies offer this service, which is not actually a loan but a service intended to help people get out of debt faster by reducing the interest on their loans. These services contact people’s creditors and get them to agree to a reduction in rate for a specified period of time. There is rarely a sharp decrease in the payment, however, so for people needing cheaper monthly payments, this service may not fit the bill.
Debt settlements are services, usually provided by a debt agency, which involve contacting your creditors and getting them to agree to let you settle the amount you owe them. Many creditors may hesitantly agree to let you do this because they know that, if they don’t, you might end up filing bankruptcy or just not paying them at all. By agreeing to the settlement, at least they are getting some of what you owe them.
Creditors generally will not even consider letting you settle unless you are at least 3 months past due on your payments with them. Some of them may prefer to wait even longer than 3 months.
You can call your creditors and try to get them to agree to a settlement yourself but you will generally fare better by letting another agency handle it for you. Experienced financial counselors know all of the correct things to say to your creditors that might make them agree to your request. In addition, the fact that you are serious enough to go to someone else for help indicates to your creditors that you are really in trouble.
Do keep in mind, however, that even if the company agrees to the settlement, they can still turn the unpaid part of the bill over to some collection agency to try to deal with and collect. The remainder of the money you owe (the part that is not actually paid) will be looked at by the IRS as earned income. Any amount over six hundred dollars will be turned in to the IRS by the creditor and you will be taxed on it.
If you get the company to agree to a settlement, be sure to get everything in writing. Talk with them, too, about how you plan to pay off the balance you owe. Work out an agreeable plan, get signatures, and stick to it. Once you have the amount paid in full, ask the creditor for a statement declaring that you have paid what you owe them.
Tags: debt consolidation loans, debt consolidation service, Debt Settlement
Leave a Reply