Consumer Debt and Payday Loans| Negotiating With Your Creditors

Healing Your Financial Health Part III

Yesterday in Part II of this series I addressed some great solutions for helping you eliminate debt with some balance transfer strategies. These strategies were primarily for those of you who, although struggling with debt had not yet defaulted on any payments and were still holding on to some reputable credit; perhaps you’ve gotten payday loans to stave off the fees. You can review the article by clicking on the link below.

“The Beginning Of The End | Eliminating Consumer Credit Debt”

Today, as promised, we are going to jump sides and discuss some strategies you can use to eliminate debt if you are further along in your struggle and have missed or defaulted on several payments resulting in a low credit score. This perhaps has prevented you from taking advantage of the low interest balance transfer options.

Poor Credit Strategies for Eliminating Debt

In debt and overdue? There is still hope!

As poor as your credit may be, the credit card companies still want you to do business with them. But a poor record of missed payments and the like will prevent you from creating any new accounts with additional creditors as they will no doubt see you as risk. They only want your business under two conditions: the first condition being that you have some reputable credit and the second being that you currently owe them money. The second is what you will need to leverage to your own advantage.   Payday loans to keep from missing a payment after an expense can help you keep a good payment history.

Your creditors may not be happy with you, but as long as you owe them money, they are willing to do some surprising things to get some, if not all, of that money back!

Negotiating With Your Creditors

Often times, if you are defaulting on your payments, creditors will be willing to negotiate a settlement with you. At this point they will start to focus more on what they can get back from you and not so much on what you still owe. Credit debt can often be negotiated down to around 25 to 50 cents on the dollar so if you had $50,000 in consumer credit debt, you could likely negotiate that down to as low as $12,500. This would be a dramatic change in the amount of financial stress you are currently shouldering. However, there are some catches that you must be aware of when committing yourself to these negotiations.

Consider The Consequences

First of all, negotiating down your debt will not allow you to finish paying off what you owe and then walk away with a spotless credit rating. Your credit score will be negatively affected for a period of seven to ten years before finally dropping off your credit report. Therefore, you will want to take careful consideration of your financial plans in the future.

If you are already defaulting on your payments, your credit is already blemished. Late payments of 30, 60, and 90 days or more, have already been reported to the credit bureaus, and will plague your credit score for at least thirty-six months before disappearing. So keep this in mind as well.

The big question for you then would be, “is it worth it?” Depending on your debt load, it just may be.

Bankruptcy May Be Your Best Option

Bankruptcy may be your best option

Another thing to consider if choosing to negotiate your debt down is how much will you still owe once the debt is negotiated? Furthermore, how long will it take to pay off the negotiated balance?

Whatever debt is forgiven during the negotiations is looked at as “phantom income” by the IRS, so depending on the amount forgiven, you could be looking at a hefty tax bill come the end of the year. Consider also that this might bump you into a different tax bracket that may be a disadvantage to you. The last thing you want is a bill from the IRS that you cannot afford to pay. Your current financial problems pale in comparison to what they would be if you get yourself in trouble with the IRS, and payday loans alone won’t be able to pay off the fees they may hand you.

Also, if the amount of the negotiated balance is 50% or more of your yearly income, it may be just better to claim bankruptcy. This is not something to be proud of, but the fact is this, your credit is going to be marred for quite sometime as is, and if it will take you longer then 7 to 10 years to pay off your negotiated balances then bankruptcy is your best option as it will roll off your credit report in the same amount of time. The only difference is that you wont be burdened by a debt in the mean time.

Bankruptcy is not fun to think about, but it may be the best thing you can do for both yourself and your family. Once done, you will be building your credit from scratch. Learn from your past mistakes and move on.

To your financial health,

by Personal Money Store

Your Payday Loans & Financial Education Resource