subject: How Does Debt Reduction And Debt Consolidation Get Rid Of Debt? [print this page] Millions of people in the US have accumulated a huge amount of credit card and personal debt. Since the economy has slowed down, it has become difficult for many of people to make their monthly credit card payments. Even if an individual pays the minimum amount required on their credit card, the remaining balance has more interest fees added to it every month and the debt continues to grow. Without an effective debt reduction plan, most people will stay in debt.
The US government has given its approval to financial debt management services that have a history of helping people consolidate and reduce their debt. These services focus on people that have over $10,000 in debt.
Debt consolidation and debt reduction for credit card balances, mortgages and other personal liabilities are specialized strategies provided by financial service companies. Their key purpose is to lower how much a person owes so it is possible to eventually pay off their remaining debts without going into bankruptcy.
Debt Reduction
One way the financial service companies work to reduce debt is by negotiating a settlement with credit card companies. It is known as a credit card workout and typically results in the original balances being reduced as much as 50 percent. This can make a big difference for individuals that have had their wages cut due to the slow economy.
There are some financial services that can even help you sell your home if you are having a tough time making your mortgage payments. They can counsel you on how to sell your home for less than what you owe on the mortgage without a deficiency judgment. This might get rid of the majority of your liability burden.
Also, selling your home can help you avoid foreclosure and prevent the sigma of foreclosure from ruining your credit rating. Your late payments, amounts due and other financial details usually stay on your credit report for 7 years.
Rate Reduction And Settlement
Rate reduction is a term often used to describe lowering your interest rates on the your credit cards and your home mortgage. Even though a rate reduction can lower your future payments, it does not reduce the original balance. It only lowers how much will be added in the future to what your already owe.
However, a settlement for a debt is a procedure in which an individual or a debt professional will negotiate with the individual's creditors to form a agreement to settle (pay off) all of the credit card balances at a lower amount. This process can reduce the original debt by as much as 40% to 60% .
The procedure is done in the same way whether you use a professional debt settlement company or negotiate by yourself. The settlement professionals will need your signature on a legal document that gives them a limited power of attorney. This will allow them to negotiate for your benefit.
Next, you will need to regularly put money aside to grow a settlement fund. After the fund is big enough to make a reasonable offer to settle your debts, a debt professional will negotiate with your creditors for a lower payoff of your balance. The amount of payoff can be only 25% to 50% of what you owed. For example, if your outstanding credit care balance was $10,000 the credit card company may agree to a $2,500 payoff.
Why Do Credit Card Companies Accept Reduced Payments?
It is reasonable to wonder why credit card companies would be willing to take less than what they are owed. Negotiating for less profit seems to make no sense at all. However, the majority of them will acknowledge that it is preferable to get a partial payment than to get no payment at all.
Why Work With A Financial Serve?
It is a good idea to work with a financial debt management service because they will understand more about the standard practices of most creditors. Also, they should be able to successfully negotiate with a credit card company because it is likely that they already have a business relationship with the credit card companies after working together for years.
In addition, professional financial companies often have specialized software tools that are designed to help you control your debts. The company has a tool called "Vision software" that can make controlling your debt possible. Once this information gets collected, they will help you cut your debt in half, consolidate the debt that remains and help you sell your home to avoid foreclosure. You can find out exactly how their services work during a free consultation.
