There are times when a person swipes his or her Credit Card for almost every purchase and finally at the end of the month he or she is unable to clear the outstanding balance and then ends up paying just the minimum amount due. He or she then continues using the Credit Card. He or she reaches the maximum limit on the card and instead of settling the amount, takes another Credit Card and repeats the same process. This leads to the person paying a heavy minimum amount due and not really clearing the Credit Card balance. The person doesn’t have an income that can help him or her to clear out the loan and ends up with a huge debt and a bad credit score. What can a person do under this circumstances? The first thing that he or she considers is to settle the loan with the debt collector.
Different ways to get out of debt
Settling the loan is not the only option available. You can either consolidate your debt, manage it, settle it, claim bankruptcy or you can clear it out yourself.
Debt consolidation is the least drastic option and it doesn’t require you negotiating with creditors to consolidate the loan, instead you take a loan to pay off your existing debt. What happens here is that you won’t be paying minimum payments for different cards. It helps you streamline your payments and just one bill is delivered each month. You might end up paying lower interest when compared to the combined interest you were paying earlier. You will have to research and take a loan that offers interest that is affordable and read the fine print and calculate the total cost of the loan before you decide to take it. You can get your debt consolidated with the current lender or it can be a new lender. If you take a new loan from a new lender, the new lender will clear the debt with your current lender.
Debt Management Plan programs are offered by companies and nonprofit groups and they help you negotiate a new payment plan with your current lenders. You will still be clearing the same debt with the same provider, but you will have a lower interest rate or a lower monthly payment post the negotiation. You can also get in touch with a credit counsellor and he or she will help you chalk out a plan to help clear the loan. The counsellor will have your credit card cancelled and that will hurt your credit score temporarily. But, it will increase the rate of your credit utilisation. After the credit cards have been cancelled start paying the debt off according to the plan and make sure you keep a track of the statements.
Debt settlement is a drastic option. You tell the lender that you are unable to pay the amount you owe and can only pay a fraction of the debt on cancelling the debt. Though you get rid of the loan, it will significantly hurt your credit score and there will be a record of it in your credit history for over 7 years. If you have explored all the other options and nothing will work out for you and you have decided on settling the debt, you will have to contact the debt settlement company. The debt settlement company will ask you to sign a contract saying that you will pay a lump sum or keep depositing amount in an escrow account. The debt won’t be immediately cleared. The company will wait till you have accumulated enough money and then take the lump sum to settle the debt. But, ensure that your lender is accepting the settlement amount and that you are not wasting time by accumulating the amount and missing out on servicing your debt.
This is the most drastic step one can take. If declaring bankruptcy is the only option you have left after trying out the other methods, there is no shame in it. You rather go through declaring bankruptcy instead of trying the inappropriate debt reduction methods. Your credit will be hurt. You will however be debt free. You can go back to building your credit and borrowing money eventually.
Clear debt yourself:
You can also clear the debt by yourself and not have to approach any agency. You can talk to your lender and have the interest rate reduced. Fix your budget and then prioritise your payment. Start by clearing out the biggest debt and move on to small ones. There are many free online tools available that can help you manage your debt. You can also ask for help from your family members or friends to clear out the debt and pay them off in time. This way you and your family member or friend can settle on a low interest rate that won’t financially strain you.
Debt settlement in Dubai
ADIB offers Debt settlement option to their customers. National Bank of Abu Dhabi also offers Buyout Loans that will help you clear out your debts or consolidate it.
Credit Card related Articles
- How to use a Credit Card
- How to Increase the Credit Limit on your Credit Card
- How to find the perfect Credit Card in UAE
- How to Find Credit Cards with Cash Back Offers
- Get Cash Advance from Credit Card
- Common mistakes to avoid when it comes to Credit Cards
- Finance charges calculation on Credit Cards
- Payment Options to settle Credit Card debt