Key Takeaways
- Debt resolution is similar to debt settlement but requires the services of an attorney.
- You don't have to miss payments to start debt resolution, making creditors less aggressive.
- Your credit score will be affected, but potentially less than with debt settlement if reported as "paid."
- Fitting debt resolution into your 2020 financial resolutions includes saving money, paying down debt, and controlling spending.
The year 2020 is coming towards us with lots of surprises, both good and bad. We should prepare ourselves for anything good, and also if anything bad happens. But one thing we can do is to make new year resolutions that can lead our life towards happiness in the coming year.
You need to decide your resolutions based on your prime life goals, mostly on your financial goals. Trust me, managing your debts or getting out of debt is the top priority financial goal in anyone's life. So, you must include debt resolutions as a part of your new year's financial resolution.
If you want to fit debt resolution into your financial resolution, the first thing you need to know is what is debt resolution and its aspects.
What Is Debt Resolution?
Many people believe that debt resolution and debt settlement are identical. The thing is true but there is a little difference between debt resolution and debt settlement. The objectives of both processes are the same - it is to lower your debt amount into a figure that is affordable to pay off easily.
Then what's the difference? Debt resolution will need the services of an attorney but debt settlement does not. To ease up the negotiation, debt settlement companies may require that the debtor should miss 2-3 payments. Debt resolution does not require missed payments.
Here are 3 characteristics of debt resolution:
- Debt resolution attorneys: Work with you to negotiate with creditors and fix a repayment program.
- Payments: Can be lump sum or spread over time based on negotiation.
- Effect on credit scores: Will impact your score but potentially less than debt settlement.
Debt Resolution Attorneys
The debt resolution company attorney will help you to fix a debt repayment program according to your financial situation. The attorney would negotiate with each creditor so that they can accept a lower payment towards your debt.
Key Benefits of Working with Debt Resolution Attorneys:
- Skilled Negotiation: It is up to the attorney how skillfully he/she manages to eliminate interest charges and other fees charged by the creditors.
- No Missed Payments Required: You don't have to miss any payment to get the debt resolution process started. This will make the creditors less aggressive towards you.
- Legal Protection: As a result, you can expect that they won't take any direct legal action against you. If any legal matters arise in between, the attorney will handle them on behalf of you.
Payments
Debt resolution payments might be in a lump sum or spread over a while, based on how skillfully your debt attorney has managed your creditors and negotiated the terms.
The payment structure for debt resolution varies based on your attorney's negotiation with creditors. Payments can be arranged as a lump sum or distributed over time according to what best suits your financial situation.
Payment Options:
- Lump-sum payment: One-time settlement amount negotiated by your attorney
- Spread payments: Extended payment schedule based on negotiated terms
- Attorney's role: The skill of your attorney determines the terms and payment flexibility
Effect on Your Credit Scores
Debt resolution shares similarities with debt settlement - in both cases, you pay creditors less than the full amount owed. However, debt resolution may have a slight advantage since you don't have to stop making payments initially.
Credit Score Impact:
- Late payments can affect your credit score and remain on your report for 7 years and 180 days
- If your attorney can negotiate for the payment to be reported as "paid" rather than "settled," the impact on your score may be reduced
- Your score will still be affected since you're paying less than the total debt owed
Best Practice:
Make continuous payments to creditors without missing any. Once you decide to pursue debt resolution, have your attorney begin negotiations immediately to settle the debt for a reduced amount while maintaining your payment history.
Financial Resolution #1: Saving Money
Building savings is one of the top financial priorities, with nearly half of Americans focusing on this goal. Here are key savings strategies to implement:
Automatic Retirement Savings
Set up recurring transfers from your checking account to retirement accounts. The money moves automatically before you can spend it, ensuring consistent progress toward retirement goals.
High-Deductible Health Plans
Contribute to Health Savings Accounts (HSA) attached to high-deductible health plans. HSAs offer triple tax benefits and help you save for healthcare in retirement.
Emergency Fund
Save 3 to 6 months' worth of major expenses. Aim to save at least 15% of your pre-tax income annually to build financial security.
Financial Resolution #2: Paying Down High-Interest Debt
Eliminating high-interest debt is a critical financial priority. Strategic debt repayment improves your financial health and overall happiness.
Debt Repayment Strategies:
- Create a chronological list: Organize all debts to understand your complete situation
- Debt snowball or avalanche method: Choose the approach that matches your affordability
- Maintain minimum payments: Continue paying minimums on all accounts each month
- Consider debt resolution or settlement: These options can make becoming debt-free easier
Paying off debt creates lasting improvements to your financial future and personal well-being.
Financial Resolution #3: Control Spending
Controlling finances starts with smart budgeting strategies. The envelope method helps maintain balance across spending categories.
The Envelope Budgeting Method:
Step 1: Determine spending amounts for categories like groceries, entertainment, and transportation for your time frame (biweekly or monthly).
Step 2: Create an envelope for each spending category with the allocated cash amount.
Step 3: Use only the money from each envelope for that specific category - no borrowing between envelopes.
Step 4: Spend the allocated amount throughout the entire period (2 or 4 weeks).
Additional Spending Control Tips:
- Use cash over cards: People typically spend less when using physical cash
- Limit card usage: Hide credit cards temporarily if you depend on them too much
- Pay in full monthly: If using credit cards, commit to paying them off completely each month
The Bottom Line
Based on the debt resolution, these should be your prime financial resolutions for 2020. By understanding what debt resolution is and how it differs from debt settlement, you can make informed decisions about managing your debt.
Remember to focus on saving money through automatic retirement contributions and emergency funds, paying down high-interest debt using proven methods, and controlling spending through budgeting techniques like the envelope method.
With the help of a skilled debt resolution attorney and commitment to your financial resolutions, you can achieve a debt-free future in 2020.
Ready to Make Debt Resolution Part of Your Financial Plan?
Our certified debt resolution specialists can help you understand your options and create a plan that fits your 2020 financial resolutions. Get a free consultation to explore debt resolution strategies.
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Financial Contributor
This article was contributed by a member of the DebtCC community with expertise in debt resolution and financial planning. Our contributors share practical insights to help readers make informed decisions about managing debt and achieving their financial resolutions.