Ways to get out of debt
Many people go into debt, looking for a way to solve a financial problem. But what happens when the debt starts to pile up, and you end up with too many loan providers knocking at your account's door, demanding payment?
Sound financial practices demand that we handle debts appropriately, so they are not affecting the ability to afford a comfortable lifestyle. However, getting it right with your loans can be a troublesome endeavour. Maybe harder than seeking that personal loan in the first place. In this article, we look at two terms that you come across when you are looking to manage your debt: debt consolidation loan and debt settlement.
What does it Mean to Settle a debt?
Debt settling happens when a creditor opts to look for less aggressive ways of recovering a loan from a debtor. It is also called a final or full settlement. Negotiations have to take place between the creditor and the debtor or the debtor's representative before the final terms of the agreement is reached upon.
Settling debt is a viable option for people who:
- Have a considerable amount of saving that is usable in debt payment
- Have been collecting some money over time
- Have a hard to reverse credit damage and need any possible way out of a debt
- Have a creditor that is willing to consider a settlement
The settlement process can take less than a year or more depending on the creditor's terms and other underlying factors such as the amount in question. Though one can negotiate a settlement on their own, we recommend you use an experienced mediator. This will guarantee you better terms, and you will not have to dig up all the legal and massive financial research to back up your request by yourself.
What is a Debt Consolidation Loan?
Aside from going the settlement way, another way to manage a debt would be looking for a consolidation option. In this case, you take up one primary loan and use it to pay other minor loans. The consolidation loan can be in the form of logbook loans, where you are credited against a personal asset such as a car, or a piece of land but not one under a mortgage.
In this case, you will still have debt but one which you can handle more comfortably. The interest rates change, and even the creditor might not be any of the ones you owed the initial minor loans. You will repay his loan every month until it is cleared, which could help improve your credit score. Given the amount often in play in such cases, consolidation loans take years to pay but do not negatively affect your financial status as much as many minor loans.
Consolidation Vs Settlement
While consolidation keeps you in debt but offers a better way to manage your situation, a settlement gives you the option of entirely doing away with a loan. Both options might require negotiations and several evaluations by the creditor. A settlement offers a creditor the opportunity to reclaim some of the debt before the situation gets worse. At the same time, a consolidation assures a creditor a more managed relationship with the possibility of totally clearing a significant loan.
What of Debt Relief?
There is a third option for people who are in a more critical state. If there is no sign of any hope of ever repaying your loans, a creditor might decide to offer relief or a complete cancellation altogether. This means you will not have to worry about the loan ever. However, not many creditors choose to get down this road.
You will have to freeze the debt for a year and wait to see if there are any changes in your financial status. If nothing changes, then you will be eligible for relief. However, you have to have an asset record of less than £1000 with a minimum income job.
This option is not available for people who have taken a relief on any debt in the past six years, those currently awaiting a bankruptcy hearing or one who is already bankrupt.
What is the Best Way to Manage Your Debt?
While relief and a settlement may offer you an exit, it is more advisable to go the consolidation way if you want to secure loans in the future. However, if there is no chance of recovery from debt, then a settlement will provide a better opportunity for the creditor to save on a little amount. Else, a relief will cut the relationship entirely. However, all these have their risks, and it is always a matter of eligibility.
All of these financial management tips can help you get out of debt in no time, but you should consider taking professional financial advice from Alleviate Financial Solutions.
