Have you ever been contacted by a debt negotiator? They may offer to negotiate with your creditors to pay off or forgive your debts on your behalf, providing you pay them a fee up front. Or they may offer to loan you the fee and charge you 35% interest on that loan. The letter might say, “if you have at least $10,000 in debt we can help you!” What a debt negotiator we’ll do is contact your creditors for you, and attempt to negotiate a lower payment or settlement with the creditor on your behalf. However, according to Forbes, “Debt settlement can be risky and is generally considered an option of last resort. …Indeed, it’s important to be aware of the risks. Debt settlement typically involves going delinquent on your bills and then settling with the creditors for a smaller percentage of what is owed. This can damage your credit score and appear on your credit reports for up to seven years. There is no guarantee that your creditors will agree to settle your debts—they may choose, instead, to sue you for repayment. If you succeed in having any debts forgiven, the forgiven amounts can become taxable income that gets reported to the IRS, requiring you to pay taxes on the amount that’s forgiven.” A debt settlement or relief company “will offer to negotiate with your creditors for you in exchange for a fee, which is often 15% to 25% of the total enrolled debt. As part of the debt settlement process, these companies will ask you to make payments into a separate account that they set up for you. This cash is then used to pay off your settled debt amount after negotiations with creditors.”
But why would you pay a hefty fee to a company to do for you what you could do for yourself? It won’t cost you anything to call your creditors and see if you can negotiate a reduced amount to pay them, i.e. a settlement, or to find out if they will set up a payment plan with smaller monthly payments for you that you can afford, and pay off your debt that way. Debt negotiation will cause your credit score to take a big hit, there is no guarantee that creditors will negotiate with either you or a negotiation company, and once your debt is paid off, there is no guarantee your credit score will be improved to what a higher number.
Another option is debt consolidation, which is a form of debt relief that combines multiple debts into one new consolidated debt. Instead of owing money to multiple creditors and having multiple monthly payments, debt consolidation lets you reorganize those debts into a single combined total. …Typically… your old debt gets paid off by the new loan. For example, if you currently owe a total of $15,000 on three different credit cards, you could get a personal loan for $15,000 and then pay off the balances of those three credit cards with the funds from your new loan. You’ll still owe $15,000, but the debt will be all in one place with one monthly payment, and possibly at a lower interest rate. When a debt consolidation loan comes with a lower interest rate, you can pay off the debt sooner and with a lower total cost. It’s important to remember that you’ll still owe the same amount of principal balance if you choose debt consolidation. And, if you decide to keep borrowing money on top of your consolidated debt, you may encounter financial difficulty.” (According to Forbes)
The danger of debt consolidation is that it will negatively impact your credit score, and if you continue borrowing money on top of what you owe it will damage your credit further. Luminous Vitality Wealth Partners to the rescue! With our Financial GPS, we can help you ditch your debt quickly and save money without damaging your credit score. Our Financial GPS will teach you how to pay down your debt quickly and efficiently and show you how to build wealth, too. To find out if our program can help you, fill out this contact form and submit. We will be in touch with you shortly to set up a free, initial consultation. You may also call us at Luminous Vitality Wealth Partners 530-830-2453 to book an appointment
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