If you are in debt, chances are that you have credit cards, a car loan, and even a mortgage payment. You might also have other unsecured debt such as medical debt, business loans, or student loans that you’re still paying off. That’s not necessarily a bad thing. When debt is used correctly, it allows you to obtain assets, create financial opportunities, and afford things that are important to you.
However, when you hit hard times, like all of us do, payments get delayed or missed. Outstanding debt can pile up quickly. Often when we feel buried in bills that we cannot pay and we would rather ignore it and hope for the best. However, there are options to help relieve you of the stress and get your finances under control to give you debt relief.
First, you must understand that all debt is negotiable. Programs like debt settlement and debt management can help you not only find answers and solutions to your problem but also relieve some, if not all, of your financial stress.
Below are a few key factors to have handy when deciding what to do with your total debt and how to manage it better.
The Difference Between a Debt Settlement Program and Debt Management?
The difference is debt settlement is designed to lower the overall debt by negotiating a payoff cost. Based on the negotiated amount, the creditor settles for a lesser amount than what is due.
When you settle for a lesser amount through debt negotiation, it reduces the interest rate and monthly payment to an affordable level. The nice thing about debt settlement is that you do not need a minimum credit score to qualify or take out a consolidation loan. With debt settlement, you can typically pay a fixed monthly payment and get out of debt quicker.
Debt management programs (DMP) do not help with secured debt; it only helps individuals with personal loan debt, medical bills, credit card debt, and other unsecured debt. This is an unofficial agreement with your creditors that allows an extended payment schedule to pay back the debt over a longer period.
Many debt management companies work with you to determine your disposable income. That income level is then presented to the creditors as proof of your inability to pay. Once the disposable income is determined, and the creditors agree for you to pay your debt over a fixed period, the debt management company helps you manage your payments. Typically, you will pay the debt management company a specific amount monthly to disperse the payments for you to your creditors.
Does a Debt Settlement Plan Affect Your Credit Score?
Although settled debt on an account is considered harmful, it won’t hurt you as much as not paying at all. When you settle, the account will not be removed immediately from your credit report. If you were late on payments, the account would remain on your credit report for seven years. Your payment history or whether you make all payments on time is the most important factor in credit scores. The second most important factor in credit scores is your credit utilization. Credit utilization is the amount of credit you’re using compared to your overall credit limit.
How Long does Debt Stay on a Credit Report?
This depends on the type of information and whether it’s considered “positive” or “negative.” Most generally, negative debts stay on your credit report for seven years. Closed accounts that are paid as agreed stay on your credit report for up to 10 years. Some negative marks may include late payments, collections or charged-off accounts, bankruptcy, and other negative accounts like repossessions.
What Percentage of the Debt will Collectors Settle?
The typical percent of debt settlement accepted is around 30% to 80%. This percentage may increase or decrease due to several factors, including the debt holder’s financial situation, how long you’ve had the debt, and the creditor in question. Knowing your financial situation is important during the negotiations process.
The creditor forgives based on your financial situation. The better it is, the lower the chance the debt will be forgiven or reduced. It would be hard for you to make a case that your debt should be written off when you have the means to pay a decent portion of it.
Secondly, the older the debt, the more likely it is that creditors will consider it as uncollectible. For the creditors, getting some of the debt back is better than nothing. Finally, you will want to know a bit about whom your creditor is and how they work. Whom you negotiate with is important. You will either negotiate with the original creditor, a collection agency, or a debt settlement service. If your account is over 180 days past due, it is likely you will be dealing with a collection agency at first.
Debt Settlement and Management with Roundleaf Inc.
When debt is consuming your life, we know that the only way out is to reduce the debt. Our debt management program does not entail us paying your bills for you. What it does is set you up for financial success through discovery and education.
We help you evaluate and determine if you qualify for debt settlement, and if that is the best solution for you. Our goal is to help you prevent filing bankruptcy. Through our debt management program, we will help educate you about your credit score, evaluate your debt and your income. We provide you resources so that you can understand your rights when it comes to debt repayment. Our goal is to help you with not only the interest rate but also the overall total debt.
How does a Debt Management Program Help your Credit?
Starting a debt management plan won’t have a direct impact on your credit scores. However, the debt management plan could be added to your credit report, and the process can indirectly impact your credit in several ways.
Depending on your specific situation, the pros can outweigh the cons. The main benefit of debt management is it provides solutions to your debt reduction and helps you pay it off much faster. In comparison, this is great if you do not plan to apply for credit during this process. A debt management plan can result in waived fees and lower interest rates, but you’ll still be paying your accounts in full when you complete the debt management plan.
The main drawback is that it can prevent you from qualifying for new credit until you have completed the program. The second disadvantage is that it affects the length of your credit history.
Debt settlement and management are just two ways that you can take steps to lower your overall debt, plan for future financial gains, and pave the way to financial freedom and peace of mind.
Let Roundleaf Inc., help you determine which way is best for you.