Some people may not realize their unhealthy or wrong financial decisions until it’s too late. In some cases, a stroke of bad luck or unprecedented situation (job loss due to the COVID-19 pandemic, company restructuring, etc.) causes debt to pile up. Constant calls from collectors and lawsuits from lenders are just some repercussions of having too much debt.
Debt may have a bad connotation, but a reasonable amount does not mean you’re headed for bankruptcy. Yes, good debt exists, and even large companies and rich people use some form of credit. However, there are warning signs that you are not managing your credit properly, such as:
- Living or trying to survive from paycheck to paycheck.
- Your outstanding debt is more than 50% of your monthly income.
- Relying on credit cards for most, if not all, purchases.
- Your debt does not go down despite regular payments.
- You’re unable to set up an emergency fund because of too many expenses.
Unmanageable debt affects all aspects of your life. Noticing the early signs of accumulating debt helps you take control of it while you still can. But what happens if you are already trapped in a perpetual cycle of debt?
Negative Effects Of Too Much Debt
While good debt boosts your net worth for the long term, bad credit does not provide any value. Too much debt is a sign that you are living beyond realistic means, financing items or activities you didn’t have money for in the first place. When you are trapped in the debt cycle, it impacts different areas of your life negatively.
- Bad Credit Score: your debt-to-income ratio should not be more than 50%. A poor or bad credit score makes it challenging to obtain financing with reasonable interest rates when you need it most. You may have to turn to lenders who offer bad credit loans, which will only worsen your financial situation.
- Personal Problems: when you have more debt than you can handle, your personal and work life can be severely affected. Financial difficulties result in strained relationships with family and friends. Money problems can cause difficulties focusing at work, diminishing your overall performance.
- Health Problems: managing your budget to make ends meet when you have too much debt causes overwhelming stress, which can result in ill health conditions.
- Legal Issues: debt is a legal obligation bound by the terms and conditions you agreed to. Being unable to pay your debt in time, and complete failure to pay, can bring forth legal action against you. You may need a lawyer for professional advice on how to handle your financial dilemma. If you need legal assistance, consult with a trusted law firm to help you with your debt problems.
How To Get Out Of Debt
Getting out of bad debt is not a simple matter. If it took years to accumulate your current debt, you could not expect to eliminate it in a week. There is no magic pill to relieve you of your financial woes. You need to take drastic measures to control your debt and repair your credit. To regain financial health, start doing these things:
- Reassess Your Spending Habits: different situations may call for debt, but your spending habits may be the reason for unnecessary credit applications. Most people with financial difficulties usually have unrealistic spending habits. Sit down, grab a piece of pen and paper, and jot down your income and expenses. If your expenses exceed or almost exceed your income, you are spending more than you can afford. Living from paycheck to paycheck will eventually catch up on you, especially if you have unexpected expenses like a sudden illness or a broken-down car. Regularly assess your spending habits and be mindful whenever you make purchases.
- Stop Borrowing Money: learn to make the most of what you have. To avoid borrowing money to pay for expenses, get rid of your credit card—cancel it if you must. If you want something, like a watch, and you cannot pay cash for it, you can’t afford it. Also, avoid taking out personal loans on a whim. Loans have become easier to obtain nowadays; some lenders will let you borrow money, even if your credit score is bad. Payday loans can be accessed conveniently through mobile apps. The interest rates of loans from non-traditional loan providers are higher than banks or mainstream lenders. Short-term loans are temporary fixes and will not resolve your financial troubles.
- Consolidate Your Debt: this option is suitable when your debt becomes unmanageable but not yet out of hand. First, avoid accumulating more debt. Second, reduce your debt by using the snowball method (paying off balances with the highest interest rates). A credit counselor may help you with the debt consolidation process by negotiating lower rates on the consolidated loan amount.
- Consider Debt Settlement: when debt has become too unmanageable, you may need help from a reputable law firm specializing in debt settlement like McCarthy Law PLC.
What You Need to Know About Debt Settlement
Before working with a debt settlement firm, it’s best to know how the process works and how you can benefit from it.
What Is Debt Settlement?
It entails the process of negotiating with a lender or creditor to clear the debt in exchange for a smaller sum of money. When you have too much debt to handle, debt settlement can provide permanent financial relief and help you rebuild your credit. If you’re considering debt settlement, here’s what you should know as a borrower.
1) What Types Of Debt Qualify for Settlement?
It is wrong to assume that all types of outstanding debt can be eliminated through debt settlement. In the lending industry, debt falls under two categories: secured and unsecured.
When you apply for a loan such as a car loan or a mortgage, you are taking out a secured loan. This means your debt is tied to an asset or collateral—the vehicle you purchased or your house. Unsecured debt does not need any collateral as a guarantee. Credit cards and personal loans like payday advances are examples of unsecured debt.
Secured debt may not qualify for debt settlement because the creditor has the option to seize the asset to recoup the money that you owe. The only time secured debt qualifies for debt settlement is when the lender has seized the car or property, but you still have an outstanding debt.
2) Who Is Eligible For Debt Settlement?
Similar to applying for a loan, seeking debt settlement services or negotiating a deal on your own has several requirements. These factors will help you decide whether debt settlement is your best option:
- Delinquency: if your debts are past due for the last 90 days, you can consider debt settlement. Some creditors do not entertain settlement offers if the loan is not yet delinquent.
- Availability Of Funds: you should only consider debt settlement if you have available funds to pay the lump sum or installments as agreed upon with the lender.
When your outstanding debt is starting to bother you, reach out to a debt settlement law firm to explain how the process works, and how it can benefit you.
3) Can You Negotiate With A Creditor On Your Own?
It is possible to negotiate your debt settlement personally, and you can save money by dealing with creditors yourself. However, it will be an understatement to say that you should be prepared for a battle. Aside from negotiating with creditors verbally, you must be able to draft a simple but persuasive letter. Your goal is to persuade the lender to accept partial payment to mark a debt as paid. This method puts you in control of the entire transaction, so you must not shy away from interacting with banks, collectors, and creditors. In a nutshell, the main difference between personally dealing with debt settlement and working with a law firm specializing in it is the time and costs involved. While it’s not always a guarantee that a law firm can make the process more cost- and time-efficient, working with one that has an excellent track record can work wonders. Doing it yourself has setbacks—a lack of knowledge being the biggest one—and your creditors know this.
4) Does Debt Settlement Have Any Drawbacks?
The main benefit of debt settlement is, of course, to free yourself from debt. However, there are also some drawbacks that you must know about before getting started.
First, some creditors will not accept debt settlement offers. Second, if the creditor accepts the offer, you must have enough money for the lump sum or installments. Third, settling your debt has negative effects on your credit score. Lastly, working out a deal with a creditor or bank can be challenging, especially if you have no experience in negotiations. Fortunately, you can seek the help of an experienced debt settlement firm to handle all the work, wait for a positive response, and regain financial control in the soonest possible time.
After settling your debt, you no longer have to worry about filing for bankruptcy, collectors chasing you, or creditors filing lawsuits against you. Debt settlement frees you from the burden of unpaid debt and gives you peace of mind.
5) What Should You Look For In A Debt Settlement Firm?
It’s fair to say that debt settlement companies are not all equal. To avoid wasting money and effort, you should hire the best firm to help you eliminate unwanted debt. A debt law firm will assign a legal professional to discuss the best options for your situation. Lawyers specializing in debt settlement understand the laws surrounding debt compared to non-lawyer debt settlement companies. Hiring a debt attorney to represent you gives you confidence that the best settlement will be worked out.
Nowadays, online marketing companies specialize in SEO for Lawyers, making it much easier for people to find trustworthy law firms on the Internet. You should take time to check reviews about the reputation and performance of the firm you want to hire. Working with a debt law firm is time-efficient and cost-effective; you also have peace of mind that you have the best legal counsel if you are sued because of your outstanding debt.
6) What Questions Should You Ask A Debt Settlement Company?
Before starting your debt settlement journey with a reliable firm, make sure to ask the following questions:
- What Services Does Your Company Offer?
Some companies may also offer credit counseling or partner with organizations that offer advice on financial management.
- How Much Will You Charge Me?
Cost is always a crucial consideration when hiring a debt settlement company. When you hire a company to negotiate with creditors on your behalf, you will be charged a fee—usually a fixed amount, or a percentage of the settlement amount.
- How Long Will The Debt Settlement Process Take?
When it comes to negotiating with banks or lenders, the process can take several days to months. Since different companies handle debt settlements using unique processes, you must verify their expected turnaround time. The length of time it takes to settle also depends on how cooperative the creditor is.
7) Will Debt Settlement Solve My Financial Troubles?
Debt settlement allows you to get a new lease on life, free from worry of harassment or legal complaints. However, you should avoid accumulating new debt, which defeats the purpose of debt settlement in the first place. Start your new life by being more cautious about spending and handling your finances responsibly.
Dealing with a mountain of debt is no joke. Negotiating with creditors and collectors is a nightmare. Your health, work, and personal life can immensely suffer when you are carrying a big financial burden.
Eliminating debt is easier when you have a legal ally that specializes in debt settlement. When you are free from bad debt, you don’t have to worry about collectors’ calls or getting sued for money you owe. Legally settling your debt gives you a fresh start in life. You will be able to start rebuilding your financial reputation and managing your finances properly to avoid getting trapped in the debt cycle again.