Carrying on from Five Different Ways to Get out of Debt (Part 1), we left off with the step for the debt management plan (DMP).
Using a direct deposit program to pay your monthly amount is something some organizations may suggest. Your credit cards are cancelled, which is why you will need to be ready to live life without credit. Alternatively, this will also hurt your credit score temporarily, as the rate of credit utilization will increase when your cards are canceled.
The amount of time the DMP takes can be from 3-6 years, but this depends more on the amount of income you are putting towards coming out of debt, and the amount of your total debt. Once the DMP is finished, you should be left with no debt obligations, as well as a lower credit score. However, this will be much better now than if you choose the following two ways to get out of debt:
- Debt settlement
The Bottom Line
You should only consider this method if you are finding it difficult to pay your existing bills and require a decrease in monthly payments to help with this. If you require assistance with managing money, then you may want to take part in a credit-counseling program, where you will always get credit counseling, regardless if you want to follow the DMP or not.
If you select this one of the five ways to get out of debt, it is important you begin by getting in touch with a credit counselor. Secondly, if you wish to carry out the DMP with your counselor, make sure you know everything about it and ask them questions about it.
If this one of five ways to get out of debt certainly does it for you, you need to ensure each payment is made on time. You also need to keep track of your statements from all creditors, in order to make sure everything is going as planned.
Debt Settlement and how it Works
The third of five ways to get out of debt is debt settlement. This option is a little more drastic and consists of saying to your creditors that you are unable to pay the whole amount you owe; however, you can pay a fraction right now, if they cancel the debt.
Obviously, this method will definitely hurt your credit score, which is why you may want to read all the ways to get out of debt before selecting. Some people find this is one of the best ways to get out of debt, whereas others do not. With the numerous debt settlement companies out there, you will definitely find someone you can negotiate with if you do choose this method from the five ways to get out of debt.
What to Expect
- Contact debt settlement company
- Sign contract
- Company tries to negotiate with your creditors
- Your debt is decreased, if it works
- If it does not work, things may get worse
Once you get in touch with the company, they will ask you to describe the situation you are in and will ask important details, such as the types of debt you have, how much debt you owe, and the savings and income that will go to paying off your debt.
If you agree, you will start by signing a contract and instead of paying your creditors; you will make monthly payments to the company. The money remains in an escrow account until a lump sum is made, then given to your creditors.
When there is enough money in this account, the company will contact all of your creditors in order to negotiate a settlement. At this point, you will pay some of the lump sum in exchange to have your debt cancelled (if the creditors agree).
If this works for you, your debt is decreased. However, if it does not work for you, then you will lose both money and time. If your creditors do not accept this method, this will put you very behind with your payments, which is why you should think carefully and read through the complete ways to get out of debt before selecting one. If the company fails to negotiate with any of your creditors, they should give back every penny that is held in the escrow account.
The Bottom Line
Make sure to read the fine print prior to signing for the program. You may also want to enquire about the time for settling debts as well as fees. One of the difficult factors linked with this method is you will be contacted by creditors frequently , which may lead to difficulty with coping as well as psychological impact with this one of the five ways to get out of debt.
Before you do anything, be sure to read the entire ways to get out of debt, and any agreements you settle should be provided to you in the form of writing. Be sure to have a read of Five Different Ways to Get out of Debt (Part 3) before making the final decision.