When it comes to managing your debt load, there are several paths you can choose to put you back on the road to financial freedom. Many companies advertise services that offer to settle your debt for “pennies on the dollar”, promising a quick reduction of your debts. Other companies offer programs to consolidate your debts or to teach you money management strategies. There are different benefits and risks associated with each debt reduction strategy. The first step to financially solid future is reviewing your debt reduction options to determine which program best suits your financial needs.
One of the best ways to begin to reduce your debt load is to seek counseling from a credit counseling agency. They have lots of free information and resources to help you develop a plan to get out of debt. Credit counseling companies also offer instructional courses on how to set a budget, manage your money and use credit wisely. These not for profit agencies aim to provide you with the education and resources you need to pursue debt reduction on your own. For many people, credit counseling has put them on the path to financial freedom without having to seek assistance from other debt reduction programs.
A debt settlement program is designed to negotiate repayment terms with your creditors in efforts to lower the amount of debt you are required to repay. Most people will end up repaying around 50 percent of their original debt balance. A debt settlement program will improve your credit standing to an extent once the negotiated repayment amount has been satisfied. However, your credit will be affected by negatively the delinquencies that lead to a negotiated a settlement.
An important aspect to note about debt settlement is that creditors hold most of the power and negotiating rights. The amount you will be required to repay is largely up to the creditor’s discretion. . Creditors also maintain the right to require you to satisfy delinquency fees and interest charges until the debt is satisfied. If you pursue this option as debt reduction solution, make sure the creditor provides you a written agreement from your creditor regarding your settlement. Some debt settlement companies may pass as reputable agencies but fail to represent you as their priority.
A debt management program refers to a debt consolidation process that will lump all of your debts into one monthly payment. The process takes all of your unsecured debts and places them into one monthly payment. Typically, the monthly payment is based on an amount that you can afford, but will space out the payments over several years. Unlike a debt settlement program, you will repay 100 percent of the debts owed. You credit will improve once the debts have been fully repaid and the negative marks of prior delinquent accounts will begin to fade. The fees associated with a debt consolidation company tend to be much higher than the fees for a debt settlement company and once their fees are added into the fees and interest rates applied by creditors; you may end up much more than the original debt.