There’s no doubt in the fact that debt settlement is a viable option especially for those struggling with overwhelming debt. Especially if you are someone going through a serious financial hardship then this step will definitely lift off your burden. However, every debt relief strategy comes with a few downsides and the same is the case with debt settlement. Even though it reduces the total amount of debt you owe, you’ll still have to face multiple financial challenges during the process. Especially the negative impact of settlement on your credit is something you’ll have to deal with and you require serious financial management discipline to meet your long term goals.
In order to make your journey more financially sustainable and less stressful, you should focus on saving as much money as you can during the settlement process. Today we are going to talk about all such effective strategies that can work wonders for you and make your settlement journey less bumpy.
Understanding Debt Settlement In Detail
Debt settlement is a financial strategy used by those dealing with overwhelming amounts of debt. People opt for it when they are in a dire need to resolve their debt especially due to their financial hardship which is making it really hard for them to afford the monthly repayments. In simpler words, debt settlement should be your last resort or when the only alternative left is bankruptcy because debt settlement can take a serious dig at your credit score and overall credit history too.
Here’s what happens in a debt settlement;
- You negotiate with your creditor to pay less than the full amount that you owe. Your creditor then forgives the remaining balance.
- You have to stop making payments to your creditor and instead deposit that amount into another separate savings account.
- Once enough money has accumulated, your creditor might accept a lump sum payment to resolve the debt.
- During this period, you’ll have to deal with multiple obstacles including late fees, collection calls and a negative impact on your credit score. However, if you use strategic financial planning, it will be much easier for you to go through the process without much hassle.
Best Effective Strategies To Save Money While Going Through Settlement
If you are looking for tried and tested ways to save money while going through a debt settlement with your creditor then this is just the right place for you. Here are some great tactics that can come in handy for you;
1-Create A Budget And Stick To It
In order to save money, it’s a given rule that you first have to make a budget and then stick to it strictly. You must set your goal to maximize your savings for the settlement which means shifting to a leaner lifestyle where your expenses don’t exceed your income. Note down your income, differentiate between your wants and your needs and cut down as much cost as you can. Even if it means shifting to a smaller home, eating more at home than dining out and cancelling your subscriptions that you don’t really need, you have to take all these measures to make a change and see a difference.
2-Negotiate Your Monthly Bills
Want to save big? Try negotiating your monthly bills and you sure will see a huge difference. For example, in the case of utilities, try to call your service provider, ask for discounts or any hardship programs. In case of insurance, ask for a lower premium. Downgrade your internet or phone plans to a more affordable plan. When it comes to your medical bills, ask for financial aid or interest free plans. Together all these measures can help you thousands every month. It’s just that you should learn when and how to negotiate in order to save your hard-earned money.
3-Cut Down Your Non-Essential Costs
When it comes to your critical financial obligations like your rents or car loans etc, you sure shouldn’t fall behind but then there are some financial commitments where you can cut down your expenses. Including;
- Subscriptions or memberships: Whether it’s a club membership, a gym membership or some streaming subscriptions, if you don’t really need them, cut them down or at least reduce them as much as you can.
- Student loans: Apply for an income driven or a deferment repayment plan that seems more affordable.
4-Take Measures To Increase Your Income
During such tough economic times, it’s really hard to manage your expenses with a single income. Job opportunities are fewer than before and they don’t pay like before too. The best way out is to get more jobs or take up freelancing gigs to earn a side income. Moreover, you can sell your unused items or the things that you don’t really use and take on a part time job. You must commit fully to your side hustle if you want to save money while going through a debt settlement.
5-Avoid Taking Any New Loans
When you are already stuck with a loan and are in the process of getting rid of it, it’s best if you don’t take up any more loans. The whole concept of debt can be very overwhelming. When you get a loan approved, it seems like your life has been sorted but what comes after brings a lot of stress. The repayments, the interests and the fear of lawsuits, it can take a dig at your mental health. Especially if you are trying to save during a settlement, you should never get another loan. Stop using your credit cards entirely, live strictly and avoid payday loans at all costs.
6-Set Aside Your Settlement Savings
In order to save for your settlement, you must dedicate a separate account for debt settlement purposes. This will help you prevent accidental spending and it’ll be a lot easier to keep track of your lump sum. Moreover, you’ll be able to track your progress in the debt settlement journey and everything will be entirely in your control.
Choose A Reputable And Reliable Debt Settlement Partner
Working with a debt settlement company seems like you are spending extra money as you have to pay a fee for their services. However, in the long run, this can be the best decision for you, especially because a professional settlement company like Mountains Debt Relief can help you prevent wasted money and protect you from any financial stress. Here are a few things you must know about debt settlement companies;
- No Upfront Fee: No reliable settlement company can charge you any fee upfront. As per the FDCPA, these companies can only charge after providing their services. If someone’s asking you for a fee upfront then it’s a big red flag.
- Lack Of Accreditation: You must work with a company accredited by the American Fair Credit Council. This is of utmost importance especially if you don’t want to fall victim to a scam.
- Don’t Fall For Fake Promises: If a company is offering you a deal that sounds too good to be true then it really is. You shouldn’t fall for fake and false promises. Debt settlement comes with no guarantee and it’s solely on your creditor whether he will accept your proposal or not. No company can guarantee you any positive outcomes.
Overall Verdict
Saving money during a debt settlement can seem a little daunting but it really isn’t especially if you use the right strategies and stay focused. In order to navigate the process seamlessly, you must cut down your expenses, boost your income and avoid new debt at all costs. When you commit yourself to the process and bring a little discipline in your life, things will get a lot easier and manageable for you. You must aim for a strong financial and debt-free future.
FAQs
Q1. How Much Do I Need To Save For Debt Settlement Every Month?
The answer depends on your total debt and the amount you’ve agreed to pay as a lump sum. In most cases, the required lump sum lies between 40% to 60% so you must set your realistic savings goal as per this target.
Q2. Can I Negotiate With My Creditors Without Any Debt Settlement Company?
Yes, you can negotiate with your creditors yourself but it’s only recommended for those who are really good at negotiations. If you want to stay stress free during this tough journey then it’s best that you seek professional help and opt for a reliable debt settlement company to help you with the process.
Q3. Is Debt Settlement Better Than Paying Off The Balance In Full?
It depends on your situation. If you can afford to pay off the balance in full then it’s best to do so because it won’t damage your credit as much as a debt settlement can. People opt for debt settlement when it’s the only last resort left for them due to their financial hardship.