What You Should Do When Your Debt Is Sent To Collections

An account sent to collections can be stressful and for most, it is mortifying! Especially if the debt simply got out of control due to unforeseen circumstances (COVID19) — it can happen to the best of us. After receiving several annoying phone calls or opening the dreaded collection letter, your life seems out of control and the worst-case scenarios run rampant. Take a deep breath and know that help is available.

Understanding what a debt collector is and how the process works is the first step in resolving your debt. Typically, unpaid debts get assigned to a collection agency. These agencies are in the business of recovering money owed on delinquent accounts. Your original creditor sent the debt to a third-party person or agency to collect it. Credit card debt, mortgages, auto loans and student loans are a few types of debt that can be passed on to a debt collection agency.

Should You Speak with a Collector?

Your first response may be to speak with the debt collector and explain the reasons behind the missed payments. Wrong. Debt collectors are not interested in your “Why” — they are only concerned with settling the debt. Be prepared and know your options before attempting to  negotiate and please do not panic, most importantly, do not ignore the debt collectors.  Rather than letting the phone call go to voicemail, or hitting ignore, educate yourself about your rights; how the delinquent debt affects your credit, and what are your best options for working with debt collectors.  Examine your financial situation and be realistic with how much you can afford to pay on the debt each month.

Even though negotiating with a debt collector can be intimidating, the good news is, there are protections for consumers in difficult financial situations. The Fair Debt Collection Practices Act (FDCPA) is a federal law governing debt collectors and how they conduct business. The Act defines the rights of consumers involved with debt collectors and prescribes penalties and remedies for violations of the FDCPA.

How Does the Fair Debt Collection Practices Act Protect You?

The FDCPA clearly sets out that a debt collector may not engage in unfair practices when they try to collect a debt. The unfair practices include but are not limited to:

  1. Called you about a debt you do not owe after you informed the collector you do not owe the debt;
  2. Called you at work after you told them you cannot receive such calls at work; and
  3. Called third parties (family, friends, coworkers, or neighbors) even though the collection agency knows your contact information.

Debt collectors are also prohibited from saying:

  1. You will be arrested if you do not pay your debt,
  2. They will seize, garnish, or sell your property, unless they are permitted by law to take the action and intend to do so; or
  3. Legal action will be taken against you and if taking such action would be illegal or if they do not intend to take the action.

The law requires a debt collector send you a written notice within five days of contacting you for the first time with the following information:

  • How much money you owe on the debt.
  • The name of the Debt Collection Agency.
  • Steps needed to dispute the debt.

In the event a collection agency has harassed you and you are distressed over the debt, seek the services of a third party. Remember you have options and rights when life deals you a financial blow and you are going through the complicated process.  If a collection agency violates the FDCA, you may be entitled to statutory damages up to $1,000.00, plus the collection agency has to pay your attorney’s fees and costs The FDCA also has a fee-shift provision. This means, the collection agency pays your attorney’s fees and costs.

About Agruss Law Firm

Founded in 2012, Agruss Law Firm is a national consumer rights law firm.  We help consumers stop debt collection harassment, fix inaccurate credit reports, and we also go after big businesses for deceptive practices.  Under state and federal laws, we will help you based on a fee-shift provision and/or contingency fee, which means the other side pays your attorney’s fees and costs. You will not owe us a dime for our services. We have settled thousands of consumer rights cases, and we are prepared to help you, too. Contact Agruss Law Firm at 888-572-0176 for  FREE, no obligation consultation.


Michael Agruss
Agruss Law Firm, LLC
4809 N. Ravenswood Ave, Suite 419, Chicago, IL 60640
Tel: 312-462-4112
Email: michael@agrusslawfirm.com

How to Keep Hold of Your Home When You’re in Debt

Whether you’re failing on your mortgage payments, or you’re simply suffering with debt that has necessitated those you owe to call debt collectors on you, the threat of losing your home is one of the scariest situations you can find yourself in. Your home is an asset that’s worth far more than its material value – you’ve invested your heart and soul in it and settled down to live within its walls for the long term. So, this article aims to help you protect your home – even when your debts are rising, and you feel out of control.

Stopping the Debt

Speak with Those You Owe

If you are in a tight financial situation and you’re struggling to see a way out of your current predicament, a good course of action – if you’re able to get in touch – is to speak directly to those that you owe. Avoiding the issue can only get you so far while being honest and up-front can win you a little more time.

Whether you’re contacting a lender or an individual, set up a phone call, to be honest with them about your situation, and outline how you intend to pay them back. This honesty and how you’re handling your debt issue will impress those that you owe, ensuring that you’re at least outlining how you intend to deal with your debt.

Stopping the Debt Collectors

Remember that the chief reason you’re dealing with your debts is to free yourself from the anxiety that debt can bring. But a secondary reason – and the important one for you and your family’s stability – is to keep your home from the debt collectors. You need to stop them before they attempt to acquire your home.

Often, debt collectors are bullish, and they frequently break the law in their follow-ups on the phone, by post, over email, or at your door. In these cases, you have the right to launch a lawsuit against them. You can protect yourself from an unfair debt lawsuit by finding lawyers to represent you and your family and to help keep those debt collectors at the door, instead of inside your home.

Dealing with Your Debt

To avoid your home being taken from you in the event of spiraling debts, you need to start dealing with them as soon as possible. This involves drawing up a plan of action and setting yourself some savings targets to get you closer to the black and further from the red in your bank account. It’s also a chance to set up a personal budget.

Budgeting is an important part of your financial health and can enable you to take full control of your ins and outs, ensuring that you’re always earning more than you’re spending. Given this control over your incomings and your expenditure, you’ll be able to meet the objectives that you set, paying off your debts as you do so.

Keeping your home through a debt crisis is one of the most important priorities for you and your family – so these tips should help you maintain your ownership of your home, come hell or high weather.

7 Simple Tips To Help Yourself Out Of Debt – Get Out of Debt Faster

Debt can be a difficult part of life that you have to overcome. Whether it be from various loan deadlines that are approaching, your student loans from when you took college, or even borrowing money from a friend or family member, debt is the monster under many adult’s lives. But how exactly do you go about helping yourself if you’ve fallen down the rabbit hole of debt?

How Debt Affects You

The biggest factor why you want to pay off your debts is the fact that important loans will be harder and harder to get, the longer you procrastinate on paying your debts. This reflects clearly on your credit score. Every person who has taken a loan in their lives have their credit score and it goes up or down depending on what you do with those loans. One thing to keep a note of here is that your credit score is what many companies use to gauge your risk.

You might be wondering what risk means in regards to debt. Well, your risk is how likely you are to pay the company back when they give you a loan. The lower your credit score, the higher your risk. The higher your risk, the fewer companies will be willing to give you a loan. Simple right? Get your credit score low enough and you won’t be able to find anyone that will be willing to give you a loan, even if it’s for a dire situation.

Out Of Debt

Imagine yourself in dire need of some sort of financial support for an emergency like surgery. If you can’t find anyone willing to loan you the money you need to save your own life, then it’s just game over for you.

What You Can Do About Debt

Luckily for you, there are several ways a person can help themselves dig themselves out of the hole of debt. Debt recovery requires discipline, hard work, and good money management. Some methods are simpler than others and these can be done by most able-bodied adults. Remember, debt isn’t a straight plummet to the bottom. It is instead a slow descent down a hole that you’re digging yourself into. We’ve put together a list of all the little things that you can do to help yourself out of debt

Start Budgeting

One of the most important things to do when you know you’re in debt is to start creating a budget. In this new budget, you’re going to need to cut out any unnecessary expenses. These are the things that you can live without.

But do remember to keep yourself engaged and happy while observing your budget. So do try to leave some of your earnings to leisure and relaxation. This keeps your spirits high and you won’t plummet into depression, which can be an even bigger problem than debt. Do make sure that your leisure choices aren’t digging into your salary too hard, however.

Your weekly visit to that high-class restaurant? Not this week, because you’ve got cheaper food at home. Your subscription to Time Magazine? Cancel it and resubscribe when you’re not in debt. That cross country vacation you have planned for this weekend? Postpone it for some other time because it isn’t happening right now

Every unnecessary expense you make is money not used to pay your debt that is slowly eroding your credit score. And the faster you get out of debt, the better your chances when it comes to keeping your credit score high enough for emergency loans.

Tell Your Kids That They Have to Budget Too

Teaching kids can be a difficult task as most of the time they simply don’t know the hardship that comes with earning money yet. This is especially true for adolescent kids who are starting to want more and more out of you. Despite this, it is up to you to teach them how important it is to make sure that they have a budget as well as their expenses can easily drive you deeper into debt if they aren’t responsible with the money you give them.

Think About Getting A Side Job

Remember that debts are ticking time bombs that don’t give you the luxury of time when it comes to paying them off. Your single day job just might not be enough to keep yourself and your family afloat with debt looming over the horizon. So what better way to make the most out of your time than to get a side job that will help you pay for it? You don’t have to work two full-time jobs to make a dent in your debt either.

Some part-time jobs can be very good for someone with a full-time job. Selling various products to your co-workers like makeup, food and the like are an excellent option for those looking for a little extra cash to pay off a debt. Another thing to take note of is that your second job doesn’t have to be a bore either.

Consider any extra skills and hobbies that you might have. Translate your excellent writing skills into a great side job that lets you write inspiring articles for the masses. Use your programming know-how to create websites for businesses or even go the extra mile and publish your own game online. Let your imagination fly when it comes to getting a second job and it won’t even feel like you’re working a second job.

Just remember that, regardless of how you want to go about getting a side job, sacrifices have to be made unless you want to get hit by an emergency that you won’t be able to alleviate because you’re being refused life-saving loans.

Consider Selling Things You Don’t Need

This is one of the last resorts that you have when it comes to getting out of debt. If you’re in dire need of cash, you can sell some of the old things you have lying around in your home. Collector’s items like figurines, cards, old coins and the like can sell for a large sum of cash that can be used to pay off a debt with other collectors usually bidding over tens of thousands of dollars for the rarest items in auctions. Appliances can also sell for a decent price if you can find the right person to sell them to.

Remember that these excess items are less important than making sure that your debt doesn’t go too far. You can get them back later when you’re clear of debt. So, try to canvass around your home or business, and see what appliances and collector’s items you can sell-off.

Get Rid of, or Minimize The Use of Your Credit Card

Credit cards are the best friend of many avid shoppers. Little do they know that it is slowly driving them into debt. The main reason for this is because you don’t exactly know how much you’ve spent on a credit card unless you go to your issuing company and request a spending report from them.

You’re suddenly going to be surprised that by the end of the month, you’ve already spent a thousand dollars more than your budget will allow. And many fall deeper into debt because of it. A great solution to this is to make sure you document what you use your credit card on yourself on a list or note, or better yet, limit your credit card to necessary expenses like emergencies.

Go After People Who Owe You

This is more for businesses that give out services like the recruitment and staffing industry. These commonly crop up as unpaid backdoor hires fees that you don’t get to pick up because you just don’t know how to proceed with the case against the offending companies. These fees can reach thousands of dollars that you can easily use to pay for your own company’s debt. You won’t even know the amount you’re owed till a collections agency picks up the amount for you. So make sure to do your best to chase after these companies or individuals that are hiring your candidates from behind your back.

Bankruptcy For A Fresh Start

Truly the final nail in the coffin of most debtors in bankruptcy. Personal bankruptcy will ruin your credit score guaranteed but it has the benefit of giving you a fresh start, albeit at a disadvantage. You’re going to struggle to try to rebuild your credit scores as most, if not all, your accounts involved will show a report on it that says that it was part of a bankruptcy case.

These reports will stay on your accounts for up to seven years. So you better be ready for the long haul and make the most out of your new beginning to ensure that after those seven years are up, you’re able to better handle debts. However, despite these setbacks, you’re technically debt-free and it is now your responsibility to keep it that way in the following years.

Regardless of whether you’re a simple family just trying to get by or a large multimillion-dollar company, debt is a problem that you’re eventually going to deal with or suffer from. With these simple tips in mind, you can start saving yourself from the pain and suffering that a crashing credit score brings.

Answer To Whether Using Credit Card Is Better Than Debt Relief To Pay Off A Debt

Most people use their credit card to pay of a debt whether it is a medical debt or any other without realizing the consequences of it. Credit cards nowadays are issued and are available in plenty. You will find a single credit card issuing company offering a number of different types of credit cards that have different credit limits, names and most importantly different rates of interest.

It is this rate of interest that experts suggest you consider when you use this plastic whenever, wherever and however you feel like. Inconsiderate and extensive use of credit may reach to its limits making your financial health and situation worse. Therefore, take out some time to research and go through the pros and cons of it before you hand it over the counter for swiping in the Electronic Data Capturing device or EDC.

Debt Management Plan

Credit cards and debt payments

It is best to use your credit to pay only short term expenses. This means that you must use it only for those expenses that you know and feel that you can repay at the end of the monthly billing cycle. This billing cycle may be different for each card which is the primary thing that you must consider to avoid accumulating debt in the form of interests and charges.

If you find that your budget does not permit you to save enough money to repay your credit card bill then you will almost certainly face a bigger and new problem. The outstanding amount on your credit card will increase thick and fast as interest charged on credit card is not only high but also compounded extensively. This will grow your debt.

It will not help much even if you diligently pay the minimum amount due on your credit card diligently as the interest on the unpaid debt will add quickly to your debt. It is therefore required that you know about the terms and condition of your credit card, the APR and use the card that has the least interest if you really have to.

If you find that you do not have enough credit to cover your bill you will have to consider other options such as debt consolidation, debt relief, and even debt settlement. Keep in mind that filing Chapter 7 or Chapter 13 bankruptcy is also an option to get rid of your debt but that should be your last straw when circumstances really turn out to be unbearable and unavoidable.

Ideally paying off a debt with your credit card may stop the calls from the creditor or collection agency for a specific debt but that does not mean you have eliminated it completely. Ideally, it is just a way to delay such calls as these will again surface if you miss your credit card payment which is highly on the cards and have all possibilities.

Therefore, you must follow the advice of the financial experts who suggest not using credit cards to pay any debt as it is nothing but transferring a lower debt into a high-interest debt in most of the times. 

Consider different approach

Instead of using a credit card to pay off a specific debt you must explore other available options for it. These options are as good and will not impact your credit score to the extent of missing a credit card payment.

Consult with your creditors directly or through a debt adviser, debt attorney or any credit counseling agency. This will help you to find out whether the creditor will allow and agree to an interest-free payment plan. This will make your debt more manageable than accruing interest on your credit card due to non-payment.

 You can also try out different debt relief programs that are offered by several non-profit organizations and government to help you get rid of your spiraling debts. Visit different websites to find out more about these programs and whether or not you qualify for it.

The most viable options seem to be a debt consolidation loan or a debt settlement program. You can consult a debt settlement company in this regard and even click here to know more about debt settlement companies if you do not know about any of it already. If you consolidate your debts you will have only one single debt to repay every month which typically has a very low monthly payment.

On the other hand, if you take up a debt settlement program you will pay far less than the actual amount you owe to your creditor but for that, you will have to make a lump sum payment one time.

Whatever processes you choose make sure that you have all your right protected and also know that the process will not cause any further problem in your debt free journey. There are lots of regulations set by the Fair Debt Collection Practices Act or FDCPA that you must know so that creditor or debt collection agency can follow any unfair practice.

Your credit score

It is your credit score that matters in the end. Any debt going to collections will harm your credit score by as much as 100 points. Moreover, if you cannot repay any debt then this fact and report will take seven years to disappear from your credit history.

Therefore, the best way is to choose a federal debt relief as the federal stimulus money will give you more flexibility when you will negotiate for a debt settlement with your creditors. The creditors usually use the stimulus money as a cushion and help you to eliminate a significant percentage of your debt. You may pay it back in one lump sum or even take up a payment plan.

This will not have all of the negative consequences of bankruptcy but will slightly lower your credit score which is nominal when you consider the fact that your debt can be reduced by as much as half. Moreover, you can easily rebuild your score within a very short time by paying off your debt.

Overcome Your Fear of Debt and Become Debt Free

Debt can be a very scary, depressing and demoralising subject for many. Acquiring debt is so easy today with credit cards and easy loan schemes. Paying them off is often the hardest part. Mounting debts can create fear in the hearts of the debtors and affect their life in more ways than one. It is essential that you address the fear of debt and overcome it.

Fear of debt is very dangerous as it can rob you off your sanity and peace. This article will discuss the problem of debts and how you can overcome it.

How did you get there?

Debt Consolidation

A small amount of debt can grow into a large sum, and you will still be thinking how you got there. People who are already in debt have the tendency to pile on it by borrowing more money. Inefficient management of money and not taking control of your finances are some of the reasons you fall into debt.

Student loans and credit card loans are one of the most common types of debts you get to see. Paying them becomes even more difficult if they don’t have the job or don’t make enough money. But, when debt is due you have to pay it whether you have the money or not. As the sum grows, anxiety and fear can engulf you. Soon, you will be avoiding phone calls fearing it is one of your creditors. You would ignore the bills until they become cause for a huge stress.

How it Affect you?

Debt can be the reason for stress, anxiety and depression. It can take a toll on your health, life and the fear of debt can keep you on the edge most of the time. So, it’s important to address the issue and take steps before the fear of mounting debt becomes too dangerous.

How to Overcome the Fear of Debt

If you suffer from the fear of debt, it’s now time to take steps to overcome the problems. Fortunately, there are effective strategies and tips that can help you through the process.

Here are some of the things you can do:

Create a Plan

The first step to overcoming the fear of debt is creating a plan. A plan or strategy is essential to carve out steps you can take to bring your finances under control. The journey of paying off all your debt can be long and tedious. So, you need a road-map to make the process easy and keep you focused on your goal.

First, you need to open up your bills, gather your account information and calculate how much of debt you are in. Secondly, stop avoiding the calls and start taking responsibilities. Talk to your creditors, and find out a way to pay off your debts that is most suited to your current financial situations. It will also include steps you need to take to keep the expenses under control.

Gather up the courage to face the debts and think of a plan that can help you. You can also take the help of a professional financial expert. Whatever you do, make sure you have a plan of attack to overcome the fear of debt.

Approaching the Creditors

Now, this step can be embarrassing, but it is important that you make contact with your creditors. It’s natural to feel embarrassed. Unless you contact them you cannot negotiate your debt payment agreement.

The fear of what the other person on the phone will say to you can be a big hurdle in solving your problem. Remember that there are many people like you who are facing such problems. Be polite in your conversation. Being apologetic can help in making the creditors feel that you are serious about paying off the debts.

You also need to be firm when agreeing to a term. Their initial offer may not be ideal for you. Saying no is important so that you can make them to agree to a term that will be acceptable to you without making you broke.  

Making the Effort

The only way to conquer the fear of debt is to face them head-on. Ignoring your debts and bills won’t make them go. You need to create a plan to overcome it. Explain your situation to the creditors. You will be surprised how reasonable the creditors can be.

Once you have agreed upon the plan, it’s now time to implement your strategies. Getting started on your plan will boost your confidence and help you overcome your fear of the debt. The first thing you need to do is control your expenses. Cut down on expenses that you don’t necessarily need. Food, bill, rent, and other important things come first. Eating out, luxury items shouldn’t be in your priority list as of now.

And, if you fail to make the monthly or weekly payment of amount you have agreed-on, don’t panic. Again, explain the situation to the creditors and try not to fall back on old pattern of avoiding the debts.

The Bottom-line

In order to overcome the fear of debt, you will need to be realistic about it. Avoiding the problem will not help you, facing them will. So, make sure that you call your creditors and let them know you are willing to make an effort.

Negotiate Your Credit Card Debt in Five Easy Ways

Credit card debt is one of the top reasons consumers seek debt relief. American consumers have $102 trillion in credit card debt, according to the Federal Reserve Bank. As much we all want to pay our debts on time, hardships like divorce, medical bills and job loss happen. But that doesn’t mean the banks and credit card companies are going to forgive the debt. If you have trouble paying your credit card debt, you will have to reach out to them. Here are five easy ways you can negotiate your credit card debt.

credit card debt

Talk to your credit card company.

This is both the easiest and hardest step to take. It is easier to avoid the debt—that’s why debt collectors have such a hard job. But you will have a better chance at negotiating your credit card debt if you call them before they or a third-party debt collector calls you. You may not get a friendly voice on the other end so don’t be afraid to haggle if you are not getting what you want.  The next steps involve how to reduce or erase your credit card debt.

Negotiate a lump sum payoff.

If you are having financial trouble, you may not have access to a lump sum of money. But if you can erase a lot of money off of your credit card debt, think about asking a friend or relative to borrow the money. But don’t pay the full amount with interest. The point of paying it off with a lump sum is to pay a lower amount. Negotiate until you get a good deal from the company.

Ask for a hardship or structured payment plan.

With this plan, your credit card company will freeze the debt while it negotiates a plan with you. You may get the interest rates lowered, too. Be sure to ask the credit card company if any annual fee can be waived, too.  Many credit card companies have a hardship plan and will work with customers with a positive payment history. This is a good option if you think you will get back on your feet in the near future. This plan may not work for you if your financial problems are long-term.

Workout another payment arrangement long-term.

Ask the credit card company if they will reduce the monthly payments and interest so that you can afford the bill. The downside is you will no longer be able to use the card’s credit limit (if it is not maxed out already). This is often called a “workout” arrangement because it will allow you to work your way out of the payment. You will have to stick to the arrangement you make or in many cases, the credit card company will be able to revert back to the original terms of the card. Make sure you read the fine print.

Talk to a debt relief specialist.

Sometimes the credit card companies won’t negotiate with you. But you still have options. Debt relief specialists can negotiate on your behalf to have your credit card debt erased or reduced. Be prepared to present all of your financial records and not just the credit card debt so that the debt relief specialist can have a complete picture of your ability to pay. Using a debt relief company takes the stress away from you and helps you get your credit card debt reduced.

Finally, no matter what you do make sure you have the agreements in writing. You don’t want the company to try to obtain the full credit card debt when you have agreed to a reduction.

The Freedom Debt Relief Program Could Help with Your Next Job

Credit card debt impacts so much more than just your credit score. Yes, credit scores do affect your ability to finance big ticket items like homes and vehicles. And if you are overextended with credit card debt or behind on these bills, your score will be lower than those who pay their bills on time. However,

 this is not the only way that credit card debt can wreak havoc on you. If you have high credit card debt, it could also hurt your ability to find a job, regardless of what your score is. Fortunately, Freedom Debt Relief could help.

Financial Emergency

Credit Card Debt and Your Career

Finding the right job can be stressful, especially if you are trying to enter a highly competitive market. You need the right skills, a strong resume, and the credentials to prove that you are the person for the job. Even if you have it all, you may still be one of several candidates. So, how do companies decide which person is the best person for the job?

Different businesses have different processes for hiring, but one common thread for many companies is that they want to run a credit report on candidates. This is especially common in financial and banking industries. If you are handling other people’s money, these businesses want to know that you can manage your own finances first. Now, they will not see your credit score and they cannot examine your report without your permission, but if you apply for a job that requests to look at it, can you really say no?

To ensure that your credit report helps you in your job search rather than hindering it, you need to take steps to make sure that it is in good shape. Programs like Freedom Debt Relief could help.

Steps to Improve Your Credit Report

The first step to improving your credit report is to know what is on it. Get a free copy of your report to examine it. There are plenty of ways to go about this. In fact, most credit cards these days offer free credit reports to their customers.

Once you have obtained a copy of your report, examine it thoroughly. Look for any discrepancies and challenge them. Sometimes there are things that wind up on your report that are just not true, and they can have a negative impact on it. However, according to the terms of the Fair Credit Reporting Act, if you dispute something, the credit bureau must investigate it. If they cannot verify the information they must remove it from your report.

After you have eliminated the discrepancies, take a good, honest look at the remaining information on the report. What does this data reveal about your spending habits, or your ability to pay your bills on time?

If your credit report does not paint a good picture of you, then you need to address this. Not only does it impact your ability to be hired in certain industries, a bad report can also affect your ability to rent a home, purchase a new cell phone, or even secure affordable utility services.

Paying your bills on time is a component of your credit score. But what if you fell behind on your bills because you simply cannot afford to pay them? What if they have gotten out of control? If this is the case, Freedom Debt Relief could help you put your debt behind you.

Freedom Debt Relief and Credit Card Debt

Freedom Debt Relief is the largest debt negotiator in the nation. It has helped over 400,0000 customers resolve more than $6 billion dollars in debt. They could help you resolve your credit card debt quickly and for significantly less than what you owe.

Their Certified Debt Consultants are here to help you find the right solution for your situation. They will evaluate your debt and go over your resolution options. There is no fee and no obligation when you call to get help.

Need to get your credit report in shape for the sake of your career? We could help you resolve your debt so that your report shows that you’ve paid or settled your financial obligations.

Give us a call or contact us online to start your free evaluation today!

Is It Better to Repay Debts or to Save First?

Once you finish college, get a stable job, find a place to live and start earning enough money a question inevitably comes up: “Should I start paying off my debts with the money that is left over every month or should I start saving up and then pay my debt once I have a substantial amount on my account?”. The short answer is that you should try and pay off as much of your debt before you start saving money. The long answer will include the “why” as well as the “what” you should do.

Debt Management Plan

Increasing debts

You see, it is all in the percentages that keep building up the amount of money you either have on your account or you owe. For instance, the money you have in the bank will have a very low interest rate, around 1%, while the interest rates on your debt can be anywhere between 5% and 21%, maybe even higher. So in the best case scenario, your debt is going to get bigger for about 4-5% every month, so when you get enough to finally pay off the original debt, the amount that you actually have to pay then will be much greater.

Profit for the bank

Another thing about banks is that yes, they are quite much into business and therefore aim for as huge profits as possible. And the major portion of profits for banks comes from your savings. The amount of money that you save with your bank is used to lend cash to other people or borrowers. The difference at which the bank borrows money from you and the borrowing rate it charges on other customers is their actual profit margin. In simpler words, it will always cost more to borrow money from the bank that what you would save.

Pay off your most expensive debts

Be sure you keep your credit cards after you have  paid them off in full, you will have a relatively good credit rating if you occasionally buy something with them and then pay it off quickly afterward. You can also get an interest free deal on a card and pay it off before the interest free period runs out. This will help you in case something unexpected comes up and you have used up all your savings.

Use your savings

If you have some money in your account right now, you should consider using as much of it as you can part with to pay off those debts with the highest interest rate first of all.  Therefore, you should take a look at your current debts, and mark the ones that cost you the most every year and focus on repaying them with the money you have saved – just leave enough money for your basic needs so you won’t have to take out another loan down the road.

There is something you should be aware of when trying to pay off your debt using your savings – not all debts can be cleared away efficiently using this method. For instance, certain types of mortgages will have actual penalties for paying before the set date. The best solution, in this case, is to take a part of your savings and put it into a different account that is specifically designated for the purpose of paying off the mortgage. The interest will keep building up and when the right time comes you can then use it to pay the debt. Be sure you are well informed about all the circumstances regarding your debt and read everything carefully before you sign.

Exceptions to the ‘paying-off-your-debts’ rule:

There are but very few occasions that can serve as an exception to this rule of paying off debts using your savings.  For example-

  • You can rule out the need to pay off your debts when the debts are cheaper than your savings. this basically means that if you feel that the cost of paying those debts are much higher than what you currently have in your savings account, then there is no point.
  • Penalty exception: if you already have debts that are incurring a stipulated amount of penalty on you, such as mortgages and other exclusive loans, you can consider not paying them until the penalty amounts have reduced. You can leave the cash in your savings account until the penalty is small enough.
  • Interest-free debt exception: This is specifically for those individuals who have constantly managed to pay off their debts so that they eventually become interest-free through prepayments. In such cases, if the interest rate on your debt is lower than the amount your saved cash earns after all tax deductions, you can easily earn from your savings and keep the debts as well.


The best is to make concerted efforts into paying your debts as quickly as possible. The sooner you pay off your debts, the happier and effortlessly you will be while managing your personal finances in the future. The advantages of paying off your debt first should be pretty obvious now – you will want to avoid letting the interest rate blow up and paying as much as you can right now.

Could a Debt Management Plan Clear Your Debt Issues?

Many people face debt problem at different instances of their life. Some even get harassed by the situation and end up having hard and difficult times. Generally, people having a problem with debt do feel that collectors are out there who harass you day and night. Since they seem to be merciless because their earnings depend on how much they collect from you; as such they want to transfer as much money from your pocket to theirs. However, the end isn’t at this, you can come across many debt management plans which can actually sort out your issues and render you much relief that you’ll truly be satisfied with peace.

The options

As you look forth, you can seek options to handle issues with debts which can even solve big problems. Since people can either declare a bankruptcy or pay it off, however, many chose the bankruptcy option. They come through ethical issues that involve in embracing a fresh start. But for those when amount boils down, when they handle the credits irresponsibly, it gets binds them to the lurch.

Debt Management Plan

The responsible alternatives

Now debt management plan is much more effective and works ethical decision in a responsible alternative or ethical way to handle big debt. Prior to creating any debt management plan or otherwise negotiating with the creditors personally, many people look for consumer credit counseling agency. These agencies are easy to find and you could possibly get hold of many in your city. In case you don’t find them in your nearby location, you can find one over the internet. However, you need to keep in mind that the agencies you are looking for don’t turn out to be fraudulent as many are basically scams. You should not sign up with them until you’ve done your due diligence and ensured them under reputable and good rated Business Bureau.

Debt management equals debt consolation

A debt management plan through credit counseling agencies will always provide you consolidated ways to clear your debts. Since there are counselors who will help you develop debt management plan by reviewing your finances and then will negotiate with the creditors, thus your interest rates will anyhow get reduced. Again, if your counselor turns out to be successful and your creditor agrees with the payment plans, your debts will be consolidated and so there will be no necessity to pay your creditors. Instead, you require sending a payment every month to the credit counseling agency until you’ve completed the debt management plan.

The good news of a debt management plan

One of the biggest upside to a debt management plan is that you’ll have a low monthly payment than at present. Also, since you’ll have that one payment each month, you need not have to worry about every payment or regarding the amounts needed to pay on each of them and their dates. This brings your life to be less stressful and lets you enjoy all over all again having a peaceful mind.

The bad news of a debt management plan

One of the bad news that almost every debt management plan has it that it might take up to five years to complete it since this is quite a long-term commitment. As such you’ll have to surrender your credit cards and ensure them that you’re not revolving debt during that duration of time. This plan rarely works unless you create and stick to a budget and learn about improving your monetary skills. At last, you have to make a payment every month over timely frame otherwise the plan might get canceled and you’ve to end up in worse trouble than where you’d started.

A better alternative

Many people choose debt settlement as a far better alternative to a debt management plan. Now, there are various reasons associated with this and seems to be more of an ethical and realistic alternative to fill the bankruptcy even costing less than credit counseling services or debt consolation loans. These days many families have become aware and debt free with a payment plan which they can afford easily. They have embraced this change which quickly and very effectively work them to calculate and bring them to a stress-free stage and even burden less.

Choosing a debt settlement company

Long back when internet usage seemed to remain far from the modernistic world, many debt settlement companies charged big upfront fees and were failing to deliver their promises. This made them close their shop and reappear in a few months under a different name. So, you need to be very careful when choosing for any debt settlement company. Below here are mentioned a few of the criteria which can be used to evaluate a debt settlement company.

  • Does it belong to the Better Business Bureau? What is its rating?
  • Has it been in business for more than 5 years?
  • Does it have a lot of online reviews?
  • Does it not charge any upfront fees?
  • Are its counselors friendly and could help you instead of on just selling their service?

If you’ve gathered all the answers to these questions and have come up with a “yes statement”, you’ve probably found a good, ethical and reputable debt settlement company to help you out.

Debt and the Affect It Has On People

The problem of debt is something that everyone may be familiar with. In which case, everybody may be able to relate when we say that debt can take a toll on an individual’s life. It is the thought that keeps sinking in about how you are in a big trouble with your credit and you cannot think of a way to solve the problem.

When you are preoccupied with such negative thoughts, the more difficult you find to focus on finding an effective solution.

There have been a couple of studies conducted about how money credit trouble affects people. It has been determined that this particular problem can create or start a series of troubles in a person’s life.

Out Of Debt

One, with debt, a person’s life becomes miserable.

The negative effects of credit problems start in the person’s stress about possibly being harassed by the people he owes money too. When you are in debt and you have constantly failed to settle your regular monthly payments then you should expect your creditors to ring you a couple of times and send their threats of taking legal action if they do not get paid. Such demands can make a person fearsome. And it can lead to serious psychological effects.

Two, a person in debt becomes ignominious or disgraceful.

Rarely anyone heavy in debt would like to share their story of failure. As a matter of fact, it is something to be ashamed about. At least that is what most people think and feel.

Three, people who are ashamed of revealing their miserable financial situations become forced to hide it.

And it is not only because they want to make an effort to preserve their pride and dignity. They also fear what other people think especially the people that matter in their lives not only in their social scene but also in the professional arena.

Employers look into their prospective employee’s records completely. Just imagine how frustrating it can be to lose a job opportunity you are extremely qualified for but failed miserably in the financial aspect of a background check. And it is a cycle. Naturally, a person with debts to pay would need an income and a job to earn it but if he is denied the opportunity to make a living then the more he comes burned with credit and the shame and misery that come with it.

Four, a person with a bad credit record will suffer greatly in terms of his standing with financial institution. His chances of getting a loan again will be compromised due to the credit he failed to duly settle.

Fifth, every year, hundreds of people commit suicide because of their inability to repay their debt which they have taken. Moreover a person’s private, social and professional relationships gets affected due to his inability to repay the loan . In such cases, instead of committing suicide, people should focus on the brighter sides of life and be optimistic.

Relationships also become sour with marriages getting broken due to debt and ending in divorce. A happily married couple can find themselves in a very miserable state -of-affairs caused by undue spending by either spouse or by the husband and even both. As a result, the blame game starts.

On the professional side, jobs disappear with mounting pressure of bills, rents etc.

Sixth, a defaulter often suffers from emotional collapse owing to his inability to repay back the loans he has taken. He/she becomes fed up with threatening phone calls and e-mails from the creditors.Some people become so scared that they end up selling their precious house and cars. Property eviction can escalate into legal hazards often burdening the treasury in the form of court charges.

Seventh, escalating loans can compel a person to go bankrupt. The consequences of bankruptcy can be harsh and keep you jobless in the future. Bankruptcy is a serious financial repercussion of debt and can pave the way for a dark future for the defaulter.

But more than this, it has been found out that an individual who is in trouble with his creditors tends to jeopardize his life entirely. And this includes his personal, social and professional relationships which is indeed unfortunate. However, people in a similar situation should also realize that there is a solution to every problem even with debt and it always helps to look at the brighter side of things.