Debt reduction might help you out, if your overwhelming debt burden is the reason behind your sleepless nights. Debt reduction programs can lessen your debt amounts, thereby making it easier for you to get rid of them. Eliminating the debts can help to restore your peace of mind, so that you can start afresh on your financial journey.
How to approach debt reduction
Reducing a lot of debts will evidently need extra efforts on your part. You can either get help from professionals or try to reduce your debts on your own. Negotiation is an essential part of the debt reduction process. If you decide to do it yourself, you need to negotiate with your creditors to lower your outstanding dues. Enrolling in a debt relief company can however be a better option if you want to cut down your debts. Once you enroll in a debt reduction plan, the professionals associated with the company can negotiate with your creditors or collection agencies on your behalf. They usually can come up with a better deal since they have expertise in dealing with the creditors and collection agencies. Moreover, debt reduction attorneys associated with the companies can also make sure that you complete the process in a legal way and avoid the legal hassles.
How much can we save you?
How does a debt reduction program work?
A debt settlement program usually can offer you considerable debt reduction than other debt relief alternatives. While a debt management or a consolidation program can only help you to reduce the interest rates or get rid of the penalties, a settlement program can reduce the total owed amount. Thus, settlement lies at the base of a debt reduction program.
Check out the following steps to know how a debt reduction company works for you:
- Financial analysis – You need to undergo a thorough financial analysis, when you approach a debt reduction company. Financial counselors, associated with the company, overview your income, expenses and savings to find out about your financial condition. They also look into your credit situation and determine if a debt reduction program will be helpful for you.
- Enrollment – Once you're found eligible for the program, you can enroll with the company offering debt reduction services. The debt arbitrator will explain to you about the program. You'll then need to provide them with your account statements, so that the arbitrator can have a clear idea about your creditors and debt situation.
- Accumulation of funds – For an effective debt settlement or reduction, you need to save a considerable portion of your outstanding debt (at least 50%). The debt relief company will open a trust account in your name, where you need to deposit money gradually till you save for the settlement amount.
- Negotiation – After you save the intended amount, the financial experts or debt arbitrators will contact your creditors and collection agencies and start the negotiation process. Once your creditors agree to forgive a certain portion the debt, and accept the reduced amount, the concerned parties (including you) need to sign a mutual agreement. The amount saved in your trust account will then be used to pay off your creditors. Thereby, you'll be able to get rid of your debts by paying less than what you owed.
- Updating credit report – Once the settlement process is completed, the creditors or collection agencies need to update your credit report accordingly. The account status on your report should consequently be updated as “Paid as Agreed” or “Paid as Settled”.
Popular debt reduction strategies
You can check out these popular debt reduction strategies and see if they can help you to trim your outstanding bills:
- Debt Snowball: This is one of the most popular debt reduction strategies, which you can use to your advantage. You need to enlist all your debts first, and make sure that you pay the minimum on all of them. Then, you can forward any extra money you have to the account having the lowest balance. Once that gets paid off, you can then re-evaluate your debts and set on the next account with the lowest balance. One by one, you'll be able to eliminate all your dues.
- Debt Avalanche: Instead of focusing on the account balance, the debt avalanche method favors paying off the debt with the highest interest rate. It's evident that the debts with highest interest rate multiply faster, and thus the avalanche method is a sensible choice for those who want to gradually reduce debt. After making the minimum payments on all your debt accounts, you can forward your extra money to the account with highest interest rate. You can shift your attention to the next one with highest rate, after you pay off the first one.
- Credit card balance transfer: This strategy works well if you have immense credit card debts. You can transfer all your credit card balance to a single new account with low interest rates. This way, you can eliminate your multiple bills, and benefit from reduced payments as interest rates get lowered through credit card debt reduction.
What are the benefits of debt reduction?
Find out about the benefits of debt reduction process:
- Lowered amount makes repayment easy.
- Affordable payments can help you to get rid of the dues sooner.
- You can stop bothering about multiple bills.
- You can get rid of the collection calls.
- Timely payments through debt reduction strategies can help to improve your credit.
- Counseling sessions in a debt reduction plan can help you learn about financial management.