Debt Adjustment 101

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Debt Adjustment 101

In an ideal scenario, debtors should be able to follow through with their loan due dates. Not only is it legally and morally right, but it also boosts the debtor’s credibility and reliability.

But life is not always an ideal scenario. Now, most significantly, in the time of the pandemic, individuals and businesses are still coping and striving to improve financial gains. Unfortunately, some were not as fortunate⁠—they were unable to keep afloat. As a result, some of these debtors go nearly bankrupt, making it difficult or almost impossible for them to repay their debts.

In cases of bankruptcy or severe financial strains, are debtors and creditors still able to protect their best interests? Is there some payment plan that is friendly enough for a struggling borrower?

Read on as we discuss debt adjustment below.

Debt Adjustment in a Nutshell

Debt adjustment is when a debtor and creditor negotiate a repayment plan agreeable to both parties. This process can involve reducing the total amount owed, extending the repayment period, or restructuring the debt in some other way.

Debt adjustment aims to help the debtor feasibly repay their obligations and avoid default or bankruptcy.

There are many ways to adjust debt, and the best option will depend on each individual’s circumstances. Some standard methods include:

1. Debt consolidation

Debt consolidation involves taking out a new loan to pay off multiple existing debts. This method can often result in lower monthly payments and interest rates, making it easier to repay the debt.

2. Debt settlement

Debt settlement involves negotiating with creditors to agree on a lump-sum payment of less than the total amount owed. This method can be a good option for those who are unable to repay their debts in full. The con, however, is that debt settlement will likely harm your credit score.

3. Debt management

Debt management involves working with a debt management company to create an affordable repayment plan for you. The company will then act as a middleman, making payments to your creditors on your behalf.

4. Bankruptcy

Bankruptcy should be considered a last resort, as it will negatively affect your credit score and may not discharge all of your debts.

If you decide to go ahead with debt adjustment, think about how it may affect your credit. How low could your credit score fall, and how long will the adjustment be on your credit report? And how much would it cost you to negotiate with your creditors?

To Wrap It Up

If you are struggling to repay your debts, many options are available to you. First, contact your creditors to discuss your situation and see what repayment options they may be willing to offer. If you cannot reach an agreement, numerous companies can help you negotiate with your creditors or create a repayment plan. Remember, however, that any debt adjustment will likely affect your credit score. Therefore, it is essential to consider all of your options before deciding what method works best for your finances and goals.

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