Candidates for Debt Relief

People who need debt relief are those who find themselves unable to meet their monthly debt obligations and to provide for the other essentials of life. In other words, outgo exceeds income. Generally, people in this position have late or missed payments on one or more debts, primarily credit cards, and the credit rating is already tumbling. You may find the key to the most efficient debt relief techniques in the information that is to follow.

Negotiation – Not for the Meek

If creditors and collection agencies are calling, you are probably feeling nervous and stressed, perhaps scared. They are demanding some kind of payment, you have no way of getting money to them right now, and you don’t know how to respond. Stop and take a deep breath, because there are very deliberate steps you can take to get the relief you need now.

Do not promise to pay your creditors at some point. Do not tell them you will have the money shortly. If they believe that you will be paying, they will not negotiate with you. Ask them to lower the interest rate, the monthly payment and the total debt amount. They will say “no” at first, but remain persistent. Many debtors have achieved as much as 50% reduction of the debt total as well as lower payments and interest rates. Remember – you have something they want, and this puts you in a good bargaining position.

Collection Agencies and Firms

If your debt has been turned over to a collection company, your approach will be different. First, do not talk with these people on the telephone. Tell them that they are not to call you at work. Get their address and send them a registered letter (return receipt requested) stating they are not to call you at your home. They must only contact you in writing. Ask for a “debt validation.” This will give you important information. You will see the name of the original creditor, the amount of the debt, and any fees or penalties which have been added to your debt. Most important, you will find out whether the collection firm is acting for your original creditor or if it has actually purchased your debt, a practice becoming quite common today. If the firm has purchased your debt, it did so for pennies on the dollar, and you are in a great bargaining position. Start your negotiation at 25% of the original debt. If the firm is working for the original creditor, try to obtain a 50% reduction. This must all be done in writing, not on the phone. Once agreement has been reached, be certain that it is in writing, including the monthly payment amount.

For the Meek

If you are not an assertive person, dealing with creditors and collection firms will be very difficult. You may want to employ the services of a debt consolidation professional to complete these negotiations for you and to help you secure a consolidation loan. There are fees involved, but they can be rolled into the consolidation loan.

Bankruptcy

There are two types of bankruptcy, and both will give you debt relief. Chapter 13 allows you to obtain a lower total debt amount and to pay that debt off over a period of 3-5 years. Chapter 7, more difficult to obtain, wipes out all debt and gives you a fresh start. Consult an attorney for this process, as laws vary from state-to-state.

Using Your Home

If you have equity in your home, you may want to consider a cashout refinance, taking out just enough money to pay your debt. The key to this option is that you must commit to cutting up your credit cards, and your credit rating must not have been too severely damaged before you try to refinance. This option is best for those who have made debt payments on time but who foresee difficulty ahead.

Whatever key you find here, the important follow-up behavior is that you must avoid a recurrence of the same situation. Cut those credit cards up, saving only one for emergencies. Get some financial management training and counseling, and learn to live within your means.