What are the available alternatives in debt settlement?

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When people are no longer able to cover their current debts, their first move is to find available alternatives that can help them do away with their financial problems. To some, they choose going through debt arbitration. Debt settlement is actually a legal process of negotiation for the reduction of the amount of obligation. It is possible that the creditor or group of creditors allows the elimination of certain percentage from the total obligation. This type of arbitration includes mostly unsecured debts of the debtor such as credit card obligations and medical bills.

Debt settlement versus Chapter 13 bankruptcy draws the significant differences between the two. Studying this matter is very vital if debtors intend to free themselves from the trouble of their debts. These two are similar in nature because both alternatives involve debt resolution. While Chapter 13 bankruptcy primarily involves the court because it is necessarily a legal proceeding, debt negotiation is actually a private affair between the debtor and his creditor. As the term suggests, it is a more relaxed approach to outstanding debts.

Both alternatives allow the same percentage of debts subject for repayment which ranges from 30% to 50%. Because Chapter 13 bankruptcy is administered by the court right after the petition for bankruptcy is docketed, the parties have no control of the case. The respective attorneys of the parties are fully in-charge of the progress of the proceeding. As to debt negotiation, the consumer-debtor has control on the progress of the negotiation.

The records pertaining to the Chapter 13 bankruptcy case, later on, becomes a public property open for reference and study. This is not case in debt negotiation because the parties can opt to keep all records of the negotiation to themselves only.

Some are saying that the one interesting aspect about debt arbitration is that the consumer-debtor is given the flexibility in settling his debts. But for Chapter 13 bankruptcy, the debtor is totally obliged to pay whatever is the amount imposed by the court to be paid.

Loans Pending a Settlement Lawsuit

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If a person is injured either physically or emotionally by the actions or negligence by another person, the former may file a settlement lawsuit against the latter which will eventually lead to the payment of cash for settlement to the injured party once the court decided in favor of the plaintiff. This cash settlement may be in the form of either lump sum money or structured settlement. The structured cash settlement is more preferred by many as this is mutually beneficial to both the plaintiff and defendant. Moreover, because the structured cash settlement is usually in smaller amounts in several scheduled payments agreed upon by both the plaintiff and the defendant, the taxes are generally lower as well. In fact, there are times when the structured settlements are totally tax-free.

However, because the litigation process usually takes longer, the plaintiff may face financial difficulties that will cause him to avail of a cash advance settlement. Cash advance settlements are settlement loans that are being offered to the injured party of a pending lawsuit. This type of loan is a very good way for the plaintiff, who cannot get a permanent job due to medical reasons caused by his injury, to have a certain amount of cash necessary to support his finances, while waiting for the court decision and the settlement cash to be awarded to him.

The wonderful thing about a settlement loan is that the plaintiff, or borrow, does not need to pay this in the event that he loses his case. That is why most settlement loan providers carefully evaluate the case status of the applicant and make sure that they only grant the loan to those borrowers who have bigger chance of winning the case. The drawback about settlement loans, however, is that their interest rates are generally higher. Thus, it is important that the borrower only borrows the amount that he needs before the case is finally decided upon, in order to avoid paying unnecessary taxes. It is also important for the borrower to inform his lawyer ahead of time that he is planning to avail of the loan as the lawyer needs to be prepared to give the necessary documents to the lender for the application of the loan.

Why You Should Steer Clear of Payday Loans

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Of the many different types of loans on the market the kind that often comes with the most risk attached are loans known as a Payday Loans. Payday loans are designed as short-term cash advances for people who need money urgently. This might be because they have spent their wages for the month and a bill or debt suddenly arises, or because their child needs some money for a new school uniform, or because they have simply run out of cash and need to buy some food. When used correctly they can, rarely, be a useful financial tool, but on the whole they are worth avoiding. This is because such loans often come with heavy interest rates that will only increase if you cannot make the repayment and as such are therefore very risky.
Before you even think about taking a payday loan you should ask yourself some important questions. Do you really need a cash advance that urgently? Could you not manage for two or three more weeks until your next pay packet comes in? Do you have the time to save some money before you need the cash advance? If you still need the money urgently, is there not somewhere else you can get it? Have you approached your bank and checked whether you can get an overdraft or extend you current overdraft facility? Is there any room left on your credit cards for you to draw the cash out? Although credit cards also cause problems with their high rates those rates will be nothing compared to most payday loans. Payday loans, because they are normally for small amounts over a small period of time will often charge around $30 for every $100 that you borrow. This may not seem like a great deal if you are able to pay it back when your salary comes in but it works out at over 2000% interest when you calculate the APR of the loan. And the worst bit is that many people take Payday Loans because they are in dire financial straits and end up not repaying the loan within the allotted time frame. This is when people really get in to trouble and their debts can snowball out of control.

These short-term cash advances are meant to be precisely that – short term. If there is any possibility at all that you will not be able to repay the loan then you should steer clear of them otherwise you will get yourself in all kinds of trouble. And do not borrow what you cannot afford to repay. Never ever borrow more than your monthly salary as you will almost certainly not be able to make a repayment when the month is up. And most importantly, if you absolutely must take out a payday loan, ensure that it is with one of the respectable companies out there, that will charge you a reasonable interest fee. Although all payday loans come with high interest rates, there are many companies out there who take this to the next level and charge punitive, if not immoral rates of interest. Make sure you avoid such companies.

Alex is a journalist and blogger. He currently writes about the loans sector and everything from personal loans to mortgages at www.payday-loans.co.uk.