Working with Creditors to Reduce Debt – Complete Guide
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When you find yourself drowning in debt, the situation can seem quite hopeless as you feel that creditors will be relentless when asking for repayments.
The truth is that in most cases, creditors are quite accommodating and can even help you manage your debt if you’re willing to cooperate.
In this post, I’ll be looking at how you can contact creditors and coordinate with them in order to eradicate your debt.
Communication is Key
It’s definitely stressful to be contacted with creditors when you’re drowning in debt. That being said, I can’t stress enough how important communication is.
As long as you’re communicative and cooperative with your creditor(s), most of them are going to give you time and breathing space to sort out your finances.
On the other hand, if you ignore your creditor’s calls and/or other attempts to get in touch with you, then this is most certainly going to exacerbate the situation.
Your creditor is not just going to go away and leave you alone if you ignore their calls. On the contrary, they’re going to start pursuing legal action against you. They may even hire debt collectors to extract money from you.
This is why it’s essential that you keep your creditor(s) in the loop at all times and keep them aware of what actions you’re taking to pay off your debts.
As long as your creditor(s) are able to see that you’re making a conscious effort to address your debts, they won’t pursue legal action against you. In fact, they may even try and actively help you by cooperating with you on whatever repayment plan you may choose.
Debt Management Plan (DMP)
As you may be aware, a DMP is an informal debt solution that works as an agreement between you and your creditor(s).
It states that you will keep making payments towards your debts in the form of monthly payments until it has been completely paid off.
The great thing about DMPs is that when you enter into one, there’s a chance that your creditors may freeze interest and charges on your debt repayments.
This can drastically reduce the amount of money you have to pay as compared to if you hadn’t gone for a DMP.
You can choose to set up a DMP on your own or you can choose to get it set up via a debt relief company or debt advice agency.
If you choose to get it set up via a third party, you won’t have to interact or negotiate with your creditors at all.
However, it’s important that if you’re utilising the services of a debt advice agency, you should always go for one that’s going to assist you for free. It’s an extremely bad idea to opt for a debt advice agency that charges you money for their services when you’re already suffering from crippling debt.
Again, this is where it’s important to be communicative with your creditor(s). When you’re setting up your DMP, be sure to inform your creditor(s) of this fact so that they can give you breathing space while you set it up.
Most creditors will give you at least 30 days to get your DMP set up.
Debt Settlement Offer
A debt settlement offer (also known as a ‘full and final’ settlement offer) involves you making a single lump-sum payment which is then distributed among your creditors according to how much money you owed each of them.
This payment does not have to be equal to the full amount you owe. A debt settlement offer can involve you paying a single large sum of money in exchange for your creditor(s) to write off the remaining debt.
Your creditor(s) would be willing to do this if they feel that you’re going to have difficulty paying your debts off if you do it through monthly payments or through a payment plan.
Just like with a DMP, if you feel like you can get a better deal by negotiating with your creditors on your own, you can choose to do so.
On the other hand, you can also choose to seek the services of a debt settlement company. A debt settlement company would negotiate with creditors on your behalf and try to get you the best deal possible.
Of course, you may be able to settle for less than the full amount anyway but a debt settlement company might be able to get some added benefits for you as well. Plus, it’s always nice to not have the burden of negotiation with creditor(s) placed on your head.
Most debt settlement companies will charge you for their services. This fee is normally taken out of the lump-sum payment that you’re going to make to your creditor(s).
Reducing Credit Card Debt
It’s quite common for a person to find themselves in credit card debt as this is a type of debt that creeps up on you if not kept in check.
Paying debts you have outstanding to a credit card company can also be extremely tough since they typically have high interest rates.
Oftentimes, a single phone call to the credit card company can be enough to get your interest rates reduced.
Getting your interest rate lowered by a single point or two can mean you are saving up to hundreds of pounds that you would have otherwise had to pay.
Credit card companies also typically charge interest on a daily basis. Thus, if you make your payments more quickly, you can lower your average daily balance which can lead to lower interest charges.
Hence, if you can afford it, making two minimum payments towards credit card companies instead of one can effectively lower your debts to them by a lot.
Your creditor(s) can often seem like the villains in your story but oftentimes, if you cooperate with them and be communicative, they can turn into helpful allies.
Just make sure to be sincere with them about your financial situation and they will definitely help you take care of your secured as well as unsecured debts.