If you’ve chosen debt settlement as a way to become debt free, congratulations! You’re now part of the thousands of other Americans that have used debt settlement to achieve debt relief.
It is possible to settle your debts yourself. But most people hire a professional debt settlement company. The biggest reason for this is that they simply don’t have the cash required to make the lump sum payments that are necessary in debt settlement. Hiring a debt settlement company eliminates this as people in debt settlement programs are required only to send one, affordable payment a month to the debt settlement company. Beyond this, here are six tips that can help with debt settlement and make your financial life much, much easier.
1. Cut up your credit cards
Yes, cut them up or burn them. It was probably credit cards that got you in trouble with debt in the first place so why would you want to keep them? You don’t want to cancel those cards because that would have a seriously bad effect on your credit score. The reason for this is that 15% of your credit score is based on the average amount of time you’ve had credit.
If you cancel all your cards, your average is bound to drop and so will your credit score.
Cutting up those credit cards also means you’ll have fewer financial accounts to worry about, fewer erroneous and miscellaneous fees and your credit reports will be much cleaner.
2. Consolidate your accounts
Do you have three checking accounts, two savings accounts and three retirement accounts? Why in the world would you have this many different accounts? You should be able to consolidate this down to one checking account, one savings account and no more than two requirement accounts – a traditional and maybe a Roth IRA or a traditional IRA and a 401(k) account. This will simplify your financial life so that you’ll be ready to get a fresh start after debt settlement.
3. Create a post-debt settlement budget
Once your debts have been settled the last thing you want to do is fall back into those practices that got you in trouble with debt in the first place. This means creating a budget. There are numerous smart phone apps and software programs that make it easy to create a budget. However, before you create one you need to track your spending for at least a month and, again, there are smart phone apps that can help with this. Some of the most popular of these are Cashbook Expense Tracker (for Android phones), Expenditure (for iOS phones) and Expensify (for both Android and iOS phones). Once you can see where your money’s been going you can create a budget for living below your means, which will keep you from getting into trouble with debt once again.
4. Cancel all your subscriptions
It’s those “little” subscriptions that can kill your budget because they tend to sneak up on you. Let’s say you subscribe to a couple of magazines, a local gym, four Internet-based games and one of those greeting card services. That could be costing you more than $40 a month or $480 a year. Here’s a case for you need to be ruthless. Cancel all of your subscriptions then start re-subscribing based on the ones you actually miss.
5. Consolidate any debts that were not settled
It’s possible that all your debts were not settled. This is due to the fact that some lenders simply won’t settle debts. If this is the case, try to get a loan to consolidate them. This might be tough, given the fact that you are having so much of a problem with debt that you chose debt settlement but it is possible. If you are able to get a loan this would simplify your finances as you would then have just one payment and one payment date to remember a month in place of the several payments you’re currently making.
6. Start thinking in terms of lifetime cost
When the time comes to buy a big-ticket item don’t think just in terms of the monthly payment. Negotiate and buy based on the lifetime or total cost. The question to always ask is what’s the total price? As an example of this you might be able to buy a car for around $200 a month but that’s only the start. You need to factor in things such as the cost of gas and oil changes, tires, routine maintenance and insurance payments over the five or seven years you’ll own that car. If you do this, you may find that another car with a monthly payment of $270 would actually be a better value.
In addition, when you think in terms of lifetime cost you’ll probably make fewer impulse purchases, have less clutter around your house or apartment and smaller monthly payments.