Personal Finance Advice

Debt settlement is the process of negotiating with a creditor or collection agency to pay less than the full amount of a debt and still have the debt considered settled. In other words, even though the debt is not technically paid in full, the creditor considers the account closed and will not pursue you for further payment. Even though the creditor is not getting the full amount of money owed for the debt, at least the creditor is not spending time and resources to track you down and demand full payment from you for years to come.

The two most popular ways to settle debt are by either doing it yourself, or by paying a company to do it for you. There are pros and cons to both, and which method you choose depends on different factors. One thing to keep in mind no matter which method you choose, however, is that it is far better to settle your debt than it is to just ignore it and never make an attempt to get it taken care of. While a settled debt is not necessarily a stellar mark on your credit report, a delinquent debt that is well aged is much worse.

Pros to Settling Debt Yourself: It doesn’t cost you any money to contact your creditors and request a debt settlement. By initiating the debt settlement yourself, you are able to be in control of how much money you offer and you can refuse the settlement if you don’t like the amount the creditor wants.

Cons to Settling Debt Yourself: If you are timid or unsure of what you’re doing, this can be a tiresome process. You might also forget to request the settlement in writing and if you aren’t careful you might wind up just making a payment to the balance when you thought you were actually settling the debt.

Pros to Hiring a Debt Settlement Agency: If you choose a good settlement agency, you will have someone working for you who knows exactly what to say to creditors and how little the debt can be settled for. Agencies will also know how to make sure the deal is completed and will ensure all bases are covered.

Cons to Hiring a Debt Settlement Agency: You’re paying someone to do something that you can technically do yourself for free. Fraud is rampant in this particular field, so you have to be careful when choosing an agency to represent you and your best financial interests. 

Unless you are uncomfortable dealing directly with collection agents, or if you have a great deal of debt that is overwhelming you, it is usually in your best interest to negotiate a debt settlement on your own. Call the creditor or collection agency (whichever owns the debt now) and offer an amount that you have ready access to. Don’t waste your time negotiating a settlement if you don’t have the money available.

Always get the settlement agreement in writing, and don’t pay over the phone with your checking account if you don’t have the agreement in writing and in front of you. If you don’t have the written agreement in hand, and you give your account number to the creditor, you may find that the amount you offer for a settlement is withdrawn but only credited as a payment, which will leave you with unpaid debt despite your best efforts.

Many people buy in bulk at warehouse stores because they think that they are saving quite a bit of money by buying items in bundles instead of singularly. The price per unit of some items is a lot cheaper when purchased in bulk, such as the per unit cost of a roll of toilet paper sold alone compared to the per unit cost of a roll of toilet paper sold in a bundle or 36 rolls. Besides the potential savings involved with buying in bulk, many shoppers enjoy the convenience of buying many items at once and not having to make as many trips to the store for the things they need on a regular basis.

Is buying in bulk a good financial move? It depends a lot on what kind of shopper you are and what things you are buying. It is safe to say that if you go to a warehouse store and always seem to come out saying, “Wow, I can’t believe I spent so much money!” then you probably aren’t going about it the right way. Wandering through the warehouse store, looking for items that catch your eye is not going to save you money. A warehouse store is not a guarantee of inexpensive values.

The bottom line is this: You have to plan your shopping with a warehouse store just like you have to plan your shopping with any other type of store if it is your intention to save money.

How can you save money when shopping in bulk? There are a few simple rules you should follow to make sure you are getting the most for your money:

Know the regular cost. You won’t really know if that huge box of granola bars is a good deal unless you know how much a comparable amount of granola bars would cost you at a regular grocery store. Keep in mind that sometimes it is actually cheaper to buy smaller amounts using manufacturer coupons than it is to buy in bulk at a reduced cost.

Shop with a list. Just like with any other shopping excursion, you should have a list of items you need to buy before you walk into a warehouse store. Never wander into a warehouse store with the intention of just seeing what catches your eye, because you will probably wind up spending a lot more money than you planned on spending.

Don’t use a credit card. When you use a credit card, and then carry the balance from month to month, you’ll wind up paying interest charges and will more than likely cancel out any savings you may have realized when you initially made the purchase in bulk. Be careful; many warehouse stores will automatically run a credit check when you purchase a membership and then offer a credit account that has a really high interest rate in exchange for the convenience of a charge account.

Avoid impulse buys. Warehouse stores offer a lot of basic items like diapers and household cleaners, but they also offer enticing items like decadent cheesecakes and flashy toys for kids. If you go into the store to buy pasta and hand soap, walk out with only pasta and hand soap instead of pasta, hand soap, cookies, a book and a very large bag of chips.

Lose the bulk mentality. Not everything needs to be purchased in bulk. Don’t fall into the trap of thinking that all shopping needs to be done at the warehouse store. If you only need one item, it may not be time to trek to the warehouse store and wind up spending a lot more because you have the idea in your head that bulk shopping will save you money.

Use coupons. Although some warehouse stores will not accept manufacturer coupons, most of them periodically send out coupons that are quite impressive. Look online and keep an eye on your mail to get your hands on coupons for these warehouse stores that can save you quite a bit of money.

Buying in bulk can be a good idea, but it can also be a quick way to spend way too much money. Pay attention to your spending when you visit this type of store.

You have a little extra money at the end of the month, so instead of blowing it on a night out or a new outfit you decide to do the responsible thing and send it off to one of your creditors as an extra payment. Congratulations on making a smart financial move, but do you know how your money will actually be applied to your account? Unless you specify exactly how you want to the extra payment applied to the account, you may be surprised to find that it isn’t applied as you expected. In fact, the way your payment is applied should depend on what you intended it for. Do you want it applied to the principal balance, or are you just paying next month’s payment early? You need to tell your creditor what to do with the money, otherwise the creditor will decide.

Principal Payment: A principal payment is a good choice. This type of extra payment gets applied to the overall principal amount of what you owe on your balance, and this will reduce the amount of interest you wind up paying. It is also a great way to get a debt paid off more quickly, especially if it’s a loan with a long amortization like a car loan or a mortgage. Remember that a principal payment will not allow you to skip your next payment, but it’s a smart way to apply extra funds to a debt.  

Early Payment: If you don’t specify the extra payment as “principal only” then the creditor will probably assume that you want it applied to the next payment. This means that the money will be applied to both principal and interest, and you may be off the hook for next month’s payment. Keep in mind, however, that if you already plan on making the next month’s payment, it’s a smarter move to have the entire extra payment applied to the principal balance.

Another Type of Payment: Things can get tricky when you send extra money to certain types of loans. For example, send extra money in to a mortgage loan and you may find the money lands in your escrow account, which is not where you want it unless you’re fretting over a potential escrow shortfall. The same goes for loans that have insurance products attached to them; you may find that your extra payment doesn’t even wind up touching your principal balance, but instead is applied to the extra insurance products you agreed to when you first obtained the loan.

Always specify where you want extra funds to go. Some creditors make it easy to do this by providing “principal only” boxes to check on payment coupons or within online payment forms. If things like this aren’t available, write on the check and on the payment stub that the funds are to be applied to whatever you want them applied to. If you don’t specify, your extra payment may not make much of a dent in your debt at all.