But before you contact your lender, you'll need to prepare. Talking directly and honestly with your lender may be a helpful route to debt relief. If you're considering a lump-sum payment, be sure to talk to your lender about how it may impact your overall financial situation. Second, the IRS typically considers any amount of debt forgiveness to be taxable income. Letting your debt get to this point can seriously damage your credit scores and remain on your credit reports for up to seven years. First, lenders will generally only consider settling if your debt is already late or in default. Lump-sum payments may work for certain borrowers, but this method is not for everyone. For example, if your credit card is in default and you owe $5,000 in charges and interest, you might ask to settle for a one-time payment of $3,500. In some instances of serious financial hardship, your lender or credit card provider may be willing to settle your outstanding balance for less than what you owe - provided you can offer them a large lump-sum payment. However, consolidation typically comes at a cost, including additional fees, interest and other payments, So be sure the benefits outweigh these expenses. It can also make repayment less expensive by combining the debts into a new loan or credit card with a lower interest rate. Consolidation simplifies what you owe each month, reducing the risk of missed or late payments. Debt consolidation combines several loans or credit card balances into a single new debt, typically in the form of a debt consolidation loan, a home equity loan or a balance transfer credit card. Ask your lender what repayment options might be available for your unique situation. Low-income federal student loan borrowers can apply for income-driven repayment plans that reduce monthly payments. For instance, some credit card providers offer long-term repayment plans called hardship programs to distressed borrowers. Some lenders are willing to develop repayment plans to help borrowers catch up on what they owe. Work with your lender to create a repayment plan.Because of this, forbearance may be a good option for borrowers facing temporary financial hardship such as a sudden illness, a divorce or a natural disaster. However, it's important to note that forbearance simply offers you more time to pay back what you owe and your debt will not be erased. For credit cards, some lenders may temporarily waive interest rates and other fees. For mortgages and student loans, a forbearance agreement typically sets a specific time period during which you are not required to make payments. Forbearance refers to a specific time period of debt relief for a loan or credit card. Then, present these offers to your current provider during the call. To bolster your argument, collect a few competitive offers from other credit card companies. Don't be afraid to elevate your call to a supervisor if you think it may help your chances of approval. To ask for a reduced APR, simply call your credit card company and speak with a customer service representative. Borrowers who have high credit scores, a strong payment history and an established relationship with their credit card provider will generally have a better chance of approval. Securing a lower annual percentage rate (APR) for your credit cards may be as easy as making a direct request to your credit card company. Ask your lender to reduce your interest rate.However, there's a range of negotiation strategies you might try. The relief options available to you will depend on your lender and your specific financial situation. As a result, they're often open to compromise to avoid their financial loss. They're also motivated to recoup at least a portion of what you owe them. Lenders earn money from the interest they charge on your monthly loan or credit card payments. However, some lenders may be willing to negotiate with reliable borrowers in need of debt relief. If you've fallen behind on payments for your credit card or other debts, you may not think to turn to your lender for help. Explain your situation calmly and politely and don't be afraid to elevate your call to a manager. Talking directly and honestly with your lender may be a helpful route to debt relief.Common debt negotiation strategies include asking for reduced interest rates, working with a lender to create a repayment plan and considering debt consolidation.Some lenders may be willing to negotiate with cash-strapped borrowers to offer relief options and minimize the lender's financial loss.
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