When a debt relief program works, it provides people who are struggling with large amounts of debt (usually credit card and medical) the opportunity to repay their creditors at a reduced amount. This often involves consolidating their debts into one monthly payment, which results in lower interest rates and less overall money owed.
How Does Debt Negotiation Work?
Debt negotiations work similarly to debt settlement programs by negotiating with your creditor for less than what you owe. The difference is that once you agree to settle on a certain amount, you will receive regular payments from the creditor until all of your debts have been paid off in full, whereas with settlement there is only one lump sum payment. Debt negotiation programs want to keep your business and be paid back in installments over time.
Debt Settlement vs Debt Negotiation: Which Option is Best?
Both debt settlement and debt negotiation can help you get out of debt, which one you choose will depend on your personal situation. If you only have a few creditors, usually under 5, then negotiation may be easier because it is less complicated than settling with multiple creditors at once. However, if you have more than 5 creditors there are more tax implications with settling your debts (because it is considered income), which could make negotiating an option that has fewer repercussions for you come tax season. This is by no means the end-all answer to whether settlement or negotiation would better benefit you; both options will need to be weighed against your unique set of circumstances before making the final decision.
What are the Benefits of Using a Debt Relief Company?
The benefits of using a professional, debt relief company such as freedomdebtrelief.com when trying to get out of debt are plentiful. For one, they will act as an advocate for you in negotiating with your creditors; this ensures that all agreements made on your behalf will be legally binding and enforceable by law.
Another benefit is that it allows you to spread out payments over time instead of having to come up with substantial lump sum amounts upfront (which is not always feasible considering how much high-interest credit card debt many people have).
Further, if you’re worried about making monthly payments, these programs often offer lenders extended due dates so you can pay off your debts at your own pace without being penalized for missing payments.
The Drawbacks of Debt Relief Programs
Of course, debt relief programs (w/programs) are not without drawbacks. Many times the creditor will require a fee from you upfront before they will begin negotiations on your behalf. In addition, keep in mind that most creditors do not negotiate interest rates or the amount you owe them until after at least 6 months of missed payments so you may have to use one of these programs multiple times before it is effective. Finally, if your credit score is already low when you sign up for a debt settlement program then your credit score can be further damaged by being included on a list of people who have defaulted on their debts. If this happens then you might not get approved for other types of financing in the future, such as an auto loan or home mortgage, so it’s important to weigh your options before choosing a program.
What are the Differences Between Debt Settlement, Independent Financial Advisors and Debt Consolidation Loans?
A debt consolidation loan is a type of personal loan that combines all your bills into one monthly payment. This gives you the ability to budget better because you know exactly how much money needs to be paid each month. However, many financial advisors will advise against this choice because it often makes it more difficult for borrowers to get out of debt since there is only one payment each month combined with high-interest rates (which results in longer repayment time).
On the other hand, debt settlement programs typically don’t give you the option of choosing one lump sum payment per month; instead, they encourage borrowers to pay off debts slowly or take advantage of extended due dates offered by lenders. Finally, financial advisors typically will not help you negotiate with your creditors because they are paid to advise you on how to finance better, but not actually manage the financing. This is where a debt relief company comes into play; they offer the same services as financial advisors (i.e. advising you on which course of action best benefits your financial situation), but actively seek out creditors and negotiate with them on your behalf so that you don’t have to worry about making payments or current interest rates.