There is nothing as financially destabilizing as finding yourself in the grip of ever increasing debt. Life often gets in the way of our plans to pay off our debts, and we become trapped in a debt spiral as our interest payments increase our debt to unmanageable levels. Check out our article on the impact of credit card debt.
Debt settlement is a strategy that enables debtors to pay a sum that is typically less than the amount you currently owe. This is done through third party agencies who negotiate on your behalf and guide you through the process.
If you are considering debt settlement, there are some things you should definitely keep in mind to ensure the process plays out smoothly and allows you to get your financial life back on track.
1. Don’t Close Cards with a Zero Balance
There are valid reasons to close a credit card like avoiding high annual fees, avoiding potential fraud, or if you’ve gone through a divorce or separation. However, closing cards with a zero balance is typically a poor financial decision for several reasons.
First, your credit utilization will go up. Your credit utilization ratio is determined by how much of your total available credit you’re using. When you close a credit card with a zero balance, you’re increasing your utilization percentage by reducing the amount of available credit from the ratio.
Second, having a long history of good credit helps build your score, so if you cancel an old line of credit, your credit score may take a hit.
2. Don’t Apply for New Credit Cards
Applying for a new credit card can negatively impact your credit score by reducing the overall average age of your credit accounts. Furthermore, simply submitting an application for a new credit card can hurt your score, and credit card churning, which is the act of frequently opening and closing credit accounts to take advantage of promotions and discounts, can be particularly devastating to your credit score.
In short, you shouldn’t increase your debt with new credit cards while you are trying to settle the debt that you already owe.
3. Don’t Stress Over Your Creditworthiness
Your creditworthiness helps lenders determine the likelihood that you will default on your debt. While these tips can help mitigate any negative impacts to your credit score, it’s important to remember that you need to eliminate the debt you have now before you start worrying too much about improving your creditworthiness.
4. Don’t Skip Monthly Deposits
When you participate in a debt settlement program, you are hiring a third party to negotiate with your creditors to settle your debt for less than its current value. With debt settlement programs, you typically make monthly deposits that go toward paying off your debt. If you skip paying these monthly deposits, you may be removed from the program. Debt settlement only works if you consistently make your monthly payments.
5. Don’t Withdraw from the Program Early
It is possible to withdraw from a debt settlement program early, but it is ill advised. You will still need a plan to pay your debt, only now you won’t have a partner to deal with your creditors, negotiate a lower debt payment, and guide you through the process.
The most important factor in debt settlement is the third party debt relief agency you choose to work with. Americor is a trusted consumer credit and debt relief solution company offering debt settlement programs that will help you take back control of your financial life. Contact a certified debt consultant today to receive a free debt analysis and to learn more about our debt settlement strategies.
Click here to apply: https://apply.americor.com/new
Read our article on debt collectors: Know your rights when dealing with debt collectors
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