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Unlocking a Debt-Free Future: Harnessing the Power of Debt Settlement Strategies

Sometimes a loan is just a start of a debt loop, and there are scenarios where your income takes a significant hit. This means that while, initially, everything was supposed to work just fine, you’re aware that you’ll be unable to return the money you owe.

In other words, sometimes, you get over your head and cannot settle your debts. No one gets their first loan with the intention of never returning it, but sometimes you underestimate your ability to pay back.

However, when this happens, you still have financial tools and mechanisms to help you get back on your feet. We’re talking about debt settlement strategies, and here’s how you can harness their power to unlock a debt-free future.

Why is debt such a problem?

When borrowing money, you must return more than you’ve borrowed through interest rates. Even though it may be necessary, it will feel like you’re wasting money. While some argue that borrowing money that you’ll return in ten years and saving money for ten years is the same, this interest rate makes the difference.

Other than this, for many people, debt also creates psychological pressure. Many people have a hard time living with the idea that their assets are not fully their own and that, in principle, they have less money than on paper.

Imagine you can’t make your monthly credit payment, so you borrow more to handle things. This way, you increase the total debt you owe and grow your monthly credit payment. Then, you get one more loan to handle this and are stuck in an endless debt loop.

How does debt settlement work?

Sometimes, all you need to do is check if a settlement is possible. If you notice that you’re experiencing difficulties in making your credit payments or suspect that you won’t be able to complete returning what you borrowed, you should consider this option. It doesn’t hurt just to check if your credit card and unsecured debt can be returned for much less.

Creditors agree to this deal because they recognize they won’t get the full sum back. So, the logic is that they should settle for the largest sum they can get.

This, however, needs to be negotiated, which is why you may want to hire professionals.

What debt settlement strategies are there?

It’s important to understand that there are a lot of different debt payment strategies that may be available.

  • Lump sum settlement: This is a scenario where you make a one-time payment (smaller than the total sum you owe), after which the creditor agrees to consider the debt settled.
  • Installment setting: You keep paying off your loan, but the creditor agrees to agree to a smaller amount and interest rate or a changed repayment term.
  • Partial payment settlement: This combines lump sum settlement and installment setting. You pay a lump sum in advance, and they keep paying your debt for a while.

The key thing to remember is that not all strategies will be available, and you may have to negotiate for the right one.

What are the downsides?

So far, we’ve mostly talked about your chance to settle your debts by returning less than you borrowed. Truthfully speaking, this sounds like a life hack or an exploit. After all, if this is truly the case, why would anyone return what they borrowed? Where’s the catch?

First, your credit score will be completely obliterated by this action. Just think about it, your credit score represents your creditworthiness, and you’re admitting you can’t return what you borrowed.

Second, there’s no guarantee that your creditors will agree to this debt settlement arrangement. They could just place a lawsuit instead. If anything, you must convince your creditors that you can’t pay them back and persuade them to accept this fact. Since this is a hard-to-swallow pill, the results of these negotiations are always unpredictable.

As mentioned, a debt settlement sometimes asks for an immediate lump sum payment. This means you should save up a bit before starting your negotiations.

What are your alternatives?

Even in the worst-case scenarios, debt settlements are not your only option. You can also consolidate your debt or declare bankruptcy.

Other than this, it’s worth exploring if you have any means to grow your income. Meeting monthly credit payments will no longer be problematic if you can boost your income.

Finally, if you have assets, you can sell them to settle your debts.

Just keep in mind that bankruptcy carries problems of its own, you won’t always have assets to sell, and if you could grow your income, you would have done so from the very start. Also, growing your income may not be as easy in this economy.

Wrap up

In the end, while debt settlement is far from pleasant, it is sometimes your best option. However, you should use it as a last resort due to the impact on your credit score and its uncertain nature. Finally, because so much hangs in the balance, you should go through professionals instead of handling these things independently. This is an extra cost, but it’s well worth it.