Debt Management vs Debt Settlement
While looking for ways to get out of debt we come across the two main options, Debt Management, and Debt Settlement. There is a dramatic difference between these two, and it is very important to understand the difference.
These will have a huge impact on the rest of your credit report.
Both of these have different debt strategies, and that is what is discussed in this article.
Now if you believe that the debt that you have is unfair or deceptive business, then you can contact the federal trade commission.
The main type of debt that this article will be based upon is credit card debt (which is considered an unsecured debt), but this applies to multiple different types, such as student loans, auto loans, and even mortgages.
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Debt Management
This is a way of managing your debt.
You are paying off your debt as feasible as possible.
You manage it in a way that is appropriate for your situation.
There are many debt management programs to choose from, make sure it is the best one for you.
A debt management program can actually allow you to be able to combine all of your debts and make them a single monthly payment, with the same interest rate (which should be lower due to the consolidation).
Going this route can take up to five years to complete.
There will be almost zero exceptions for you to get approved for a new line of credit.
There are multiple ways to start making way on your debt consolidation.
Here are some of the options: Lump sum payment, monthly payment, biweekly payment.
Lump-sum payment: This would be the perfect or ideal method to pay off a debt.
Unfortunately, it is very difficult.
If we had the money to pay off the debt, we would not be having any problems.
It is an option because maybe you own an extra car that you don’t need.
Maybe you have a boat that you don’t need.
Notice that in both of those situations, the word used is “need”.
This is very important.
When paying off debts, one must really the difference between “I want something” and “I need something”.
You really learn what are necessities versus what are luxuries.
Money Management
Monthly Payment: In order for this to be effective, the minimum payment is not enough.
You must pay as much as you can every month.
A credit card company issues very high-interests rates with their cards.
If the only payment that is being made is the minimum payment, then the interest will continue to rise.
The debt will become harder and harder to pay.
Always make sure that you never stop making payments.
Always make at least some type of payment.
Anything is better than nothing.
Especially once the program is set up.
They can ding you with intense penalties if you do not.
Make sure you fully read, understand, and comprehend the contractual agreement that is signed at the beginning of this process.
They might attempt to confuse you with the legal jargon, so it might be wise to have an attorney present.
Biweekly Payment: If you get paid every other week, then this is an awesome one to take advantage of.
Most bills come on a monthly basis.
12 payments a year. When biweekly payments are issued, you get 26 paychecks a year.
Divide that in have and you get 13.
If you were to make biweekly payments (splitting your monthly bill in half and paying that every two weeks) then you will get a whole extra payment within the whole year.
This is a great addition to your debt management plans.
Debt Settlement
This is an official option when all of your debts are severely delinquent.
This cannot be done until they are very far past due.
This can negatively affect your credit immensely.
Most creditors are not willing to settle on an account that is current.
There are some pros and cons to actually settling your debt.
This can be completed with either a collection agency or a self-done.
The latter would consist of you and them negotiating a settlement together
From their perspective, they are going to believe that it is better to get something rather than nothing.
When they settle, they will still attempt to get the largest amount possible.
You will be attempting to negotiate the smallest amount.
You can begin this process and do it yourself, or you can actually get in contact with a debt settlement company.
They will be able to perform these acts on your behalf.
This may take a little bit longer due to laws prohibiting other people, other than the account holder, to discuss information.
There must be documentation signed and sent to the company.
They must review it and check the validity of the document.
Then the company may proceed with the action of settling the debt.
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SUMMARY
Credit scores can be affected by settling on the account.
The company will end up dinging your credit for not paying it off in full.
They will consider it paid off on their side, but it could affect your credit.
The creditor might even come back with a lawsuit against you.
The most important thing is debt relief, either by you looking someone to help you budget your money or debt settlement.
Having debt is a huge weight on your shoulders.
It is very crucial to remove it as soon as possible.
Even if it means spending a year in your parent’s basement, eating top ramen every day, or even biking to work rather than driving.
There are many different ways to save additional money to go towards your debt.
It is very vital to remove it as soon as possible.
