When borrowers carry a large amount of debt that they are unable to repay in full, they often come across various debt settlement information sites, or sites about debt settlement or debt negotiation.

How Debt Settlement Works

Typically in debt settlement, the credit card company or collection agency will reduce the balance owing and the borrower will repay this amount (usually 35-50% of the original amount) instead of the original balance. Upon acceptance of the settlement, the borrowers will either have to provide a full payment up-front or will need to make regular monthly payments, much like a debt management system, to the creditor.

The Costs of Debt Settlement

Individuals can either negotiate themselves or enlist the assistance of a professional organization who will charge for the service. Some companies will require that a fee be paid up front, others will take a part of the monthly repayment amount, and others will take their fee only once the settlement has been approved. The recommended method and amount is for companies to get paid a percentage of the reduced debt amount on the back-end.

Debt Management

As a debt management tool, debt settlement is not recommended. There are several reasons for this, such as a reduced credit score. As well, settlements deal only with credit card debt, not student loan debt or car loan debt, and especially not mortgages or domestic judgments. Since debt management encompasses the full spectrum of credit, relying on a settlement only takes part of the debt problems into account.

Tax Implications

When reading up on debt settlement information, borrowers will discover that there are tax consequences to settling debt outside of bankruptcy. In particular, using this technique of debt management will trigger taxable income on 1099-C for any portion that has been reduced.

With the volume of debt settlement information available, it is no wonder why so many borrowers get confused or misleading information. A lot of these companies are unregulated and feel they can capitalize on what has been turning out to be the worst economic slowdown we have seen in decades. As a debt management strategy, debt settlement does not make much sense unless all, or almost all existing debt consists of credit card debt.

With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.

In terms of interest rates, the trend has been that they are rising. Considering that back in May 2009 the average card rate was 13.94% and today is a full 1% higher, credit card debt reduction is something that can easily curtail the amount of money we spend on our debt.

Rising rates are not the only reason people should concern themselves with credit card debt repayment. Let’s look at credit scores. With revolving credit, people are more apt to see their scores tank because more than 65% of their FICO score is based on two major factors: utilization and repayment history.

Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.

Negative scenarios like these are never fun to explore. Still, we need to hedge ourselves against the three negative economic facts that are going on right now. Again, they are: card rates are increasing; the economy is tough right now and the end point has not been clearly set and; credit scores are more and more important to the lenders we want get credit from. Without question, we need to put a plan for credit card debt reduction in place sooner rather than later.

It is amazing to hear some of the different reasons people have for carrying a certain amount of debt. And there are as many different reasons as there are to make-money-quick schemes. However, we all share one universal care when it comes to financial well-being and that is how to achieve it. Credit card debt reduction is one such way. And with things the way they are now, it makes much more sense to tackle such debt now before it is too late.

With banks now following strict underwriting requirements and with the prime rate expected to rise over the next few years, now is probably the right time to take a closer look at fixed rate mortgages over the variable or adjustable counterparts.

Many borrowers have already considered fixed rate mortgages. And not just because of our current economic climate. Some people simply prefer fixed rate mortgages due to the benefits they offer. Still, many are wary about getting the “best deal.” Here, we discuss some of things you can do to ensure you find the best fixed rate mortgages out there.

1. Ask what others are doing. Consult with friends and family, people you work with and see what they say about the financial institutions or brokers who offer great rates. It may be that your local lender offers better deals than its national counterpart or that one broker seems to get better rates than another.

2. Do your homework and never settle for the very first mortgage that is presented to you, no matter how appealing it might be. Make sure you do a bit of research to ensure you are indeed being offered a fair if not the best rate out there. By weighing your options, you will literally save tends of thousands of dollars over the term of your new fixed rate mortgage. There are many sites out there that monitor regional and national rates and will allow you to determine if the deal before you is indeed worth considering.

3. Consider paying points. If you want to make sure you get the lowest rate possible or if you want to lock in a lower mortgage payment, paying points at closing will allow you to do so. While this requires an up-front payment, if you have the means to do so it will allow you to enjoy the benefits of a lower payment and/or much-lower interest costs over the term.

Ultimately, you will need to do a bit of research. This can be as elaborate or as simple as you like but will undoubtedly save you tens of thousands of dollars over the course of your term. Not only will you be satisfied with the rate you receive, but you will actually be proud of the mortgage you have!