How to Get Out of Debt - Lump Sum Payment

If you are looking over your options when it comes to getting out of debt, one that may prove to be the most advantageous is the lump sum payment. This course of action is not right for everyone or every situation, but if you have only a few creditors it may be the fastest and easiest way for you to get your debt under control so that you can stop living under the shadow of your debt and get back on the road to financial freedom for you and your family.

A lump sum payment is exactly what it sounds like. Rather than making small payments over an extended period of time, you negotiate with your creditor to pay them a lump sum to cover the entire amount owed so that the balance of the deck can be completely written off. Depending on how much you owe, how far behind you are on your payments, and your personal circumstances, you may be able to negotiate for a lump sum payment that is up to 50% less than the total amount owed. This is especially true if a large portion of the balance that you owe is due to interest.

The reason that creditors are often willing to take a lump sum payment that is substantially less than the total amount owed is that they would rather receive some money then have their debtors file bankruptcy. Creditors know that if the individuals that owe them money file bankruptcy, they are not likely to get much, if any, of their money back. For them, it is a simple matter of getting as much money as possible with the lowest amount of risk. Rather than take the chance on losing out on the entire debt, they will settle for a smaller amount in a lump sum.

Just as with negotiating a payment arrangement, coming to an agreement on a lump sum payment is a matter of coming to the best terms for both parties. Of course, if you are not able to come up with the entire amount you may not be able to take advantage of this type of situation. You should also carefully consider the pros and cons of using borrowed money to cover a lump sum payment arrangement since you will be essentially rearranging your debt rather than eliminating it. If the reduction in the amount owed is significant enough, however, it may be a worthwhile course of action.