Getting started
Creating a Debt Settlement Savings Plan
How It Works
01
Debt Settlement Savings Plan
If you’re ready to begin the process of settling your debt, after Doing Your Research first, then the next step is to create your own customized Debt Settlement Savings Plan.
This will not only help you determine if your financial situation is right for debt settlement, but will also act as a ‘roadmap’ to help you stay on track throughout the process itself.
02
How to Settle
Once prepared, settling your debt is very straight-forward, although it can seem more imposing than it is.
This stage essentially involves saving, settling, and making payments.
While negotiating with creditors is necessary, we have included some tips & tricks to help prepare you for that process, as well.
03
Payments & Settlements
The last stage is simply clearing the last settlement payments and laying the ground-work to rebuild your credit (if that’s your goal).
While there are potential tax consequences for settling your debt, it is nothing compared to how much money you would potentially spend on interest or even 3rd-party program fees.
Introduction
The process for settling debt consists of three simple steps:
1) Save Money & Stop Direct Payments to Creditors
2) Negotiate with Creditors
3) Reach Settlements and Make Payments for the Settled Amount
Essentially, settling debt is about regaining your own control of your finances. In order to do this, you must stop direct payments to the creditor(s).
The reason that you must default on payments is that most banks/lenders won’t offer you a settlement for a lower amount than what you owe if you’re giving them money as interest every month.
Stopping these direct payments means that you will see a credit impact (more info below), although this is often a temporary setback, as most people will see their credit naturally restore over time due to their Utilization decreasing as the debts are settled. While every person is different, if you have noticed your credit score dropping even though you’re on-time with your payments, you may see a positive rebound occur sooner than others.
In addition, since you would be settling your debt for less than what is owed, this means that you’ll only need to save a fraction of how much you’d otherwise spend on a monthly basis just to stay on time with your direct payment. In other words, instead of paying $1,000 to stay on time with your credit cards and end up using them again to pay for living expenses, you may only need to save $600 a month to settle your debts, leaving you with an extra $400 of your own money to spend instead of further using your credit.
Lastly, the entire process to settle debt on your own is roughly 2-3 years for most people that are settling the bulk of what they owe (compared to most 3rd-party programs which claim 4-5 years to graduate). One of the great benefits to settling your own debt, however, is that you can choose for yourself what debts you want to settle, within reason – depending on your situation.
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The Cost of Debt Settlement
Debt Settlement has many positives, but also several negatives.
Click Here to make sure Debt Settlement is your best option.
Important Note – Credit Impact
Your credit will see a significant impact when settling debt; this is due to stopping the monthly payments to your creditors, which is necessary in order for your creditors to be open to settling.
If you’re experiencing the ‘treadmill effect’, which is when you’re in a cycle of making minimum payments and still having to use your credit due to not having enough cash to pay for living expenses, then you may already be experiencing an impact to your credit.
Since settling debt results in paying less than what is currently owed as a balance (not even accounting for the high fees & interest), it is common for consumers to experience an easier time rebuilding their credit due to the Credit Utilization being lowered.
Be sure to consider as many factors as possible before pursuing Debt Settlement.
Which Debts Can Be Settled
It is important to note that settling debt only applies towards unsecured debts, which means that there cannot be any collateral or property attached to the debt. In other words, the most common debts to settle are either credit cards and unsecured loans.
While you do not have to settle all your debt, it is more effective to group together as much unsecured debt as you can when settling. The reason for this is due to the impact to your credit.
Once you know which accounts you’d like to settle, the next step is to gather the most recent statements and make sure your creditors’ policies allow settlements.
Creditor Policies
Being able to settle debt relies on your creditors having policies that allow them to do so; without these policies, creditors can simply demand the full amount owed and even take legal action to pursue the debt.
This is why it is crucial to do research and prepare accordingly prior to attempting to settle debt, whenever possible.
The list of creditors that do not settle is fairly limited. Thankfully, most major banks/lenders are open to settling since they expect most consumers to get back into debt with them at some point again.
Even if your creditors are not willing to reduce the amount owed to settle a debt, if you are in a financial hardship then you may still have options to resolve the debt fairly with some help.
NOTE: Make sure your creditors have a history of negotiating and settling debts before continuing further. You do not want to potentially upset your relationship with your creditors if they do not have policies in place to offer you settlements.
Debt Settlement Savings Plan
Now that you have a list of your unsecured debts that are eligible for settlements, you can begin putting together the Savings Plan that is going to tell you approximately how much money you’re going to need to set aside in order to settle your debts with each creditor.
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The above information is for educational purposes only and is 100% free.
DebtSettlementExplained.com does not claim any responsibility for how readers use the information shown;
only that the information is based on direct experience and is free and available for everyone.