If you feel like you’re in over your head with personal debt, you’re not alone. Millions of Americans have become overextended, many as a result of easy credit, economic recessions, and losing work thanks to the pandemic. Credit cards, medical bills, personal loans, and rising interest rates do not make a good financial mix. But here’s how to deal with too much debt.
Five Strategies You May Want to Avoid
The first advice of experts in the field is to be sure you don’t make your situation worse by making common mistakes. In particular:
- Beware of just paying the minimum payments on your debts. This will result in your overall debt actually growing and your problems will only become worse.
- Beware of relying on friends and family, as it could damage relationships with the most important people in your life.
- Beware of unscrupulous credit counselors that demand cash up front, or high fees for help they promise, but don’t deliver.
- Avoid taking out a new high-interest loan to pay off lower interest rate loans. It may be easier to just have one payment, but it will actually increase the amount you have to pay back.
- Declaring bankruptcy when debt settlement may work for you.
Debt Settlement or Bankruptcy?
Two common solutions people turn to are debt settlement and bankruptcy. Generally, if you are struggling with a financial hardship and are behind or falling behind on your minimum payments, then debt settlement may be right for you. If your situation is more dire, then you may consider bankruptcy.
However, bankruptcy is a serious step with long term implications for you and your financial future. Most experts would suggest it only as a last resort. The better course is to attempt to work through your debt issue with your creditors, and this is where debt settlement companies can help.
What Is Debt Settlement?
You may have heard companies advertising that they can settle your debt for less than you owe. Is this process legitimate?
Working with a debt settlement company can actually be a great solution for many people struggling with a financial hardship. Debt settlement is the process of negotiating with your creditors to get them to forgive a potion of your debt.
Specialty settlement companies determine a reasonable monthly amount that you can afford to pay, which is based on the total amount owed. You make your affordable payment every month into a special purpose account, and as these funds accumulate, the settlement company reaches out to creditors to negotiate a final actual settlement amount. Typically these companies have excellent relationships with creditors and are negotiating on behalf of thousands of people every day.
So, how do you find a legitimate and trustworthy debt settlement company to work with? Look for a company that offers a free, no-obligation consultation to evaluate your options. Then Google their name and the word “reviews” to see what people are saying.
Above all, read the fine print. Don’t just sign with a company because they look like a salvation. You want to make sure you know what you’re getting into first.