When you have a debt, there are times when you cannot fulfil the established conditions to the latter, either due to lack of resources or situations beyond our control. In that case, it is possible to resort to debt restructuring, which involves changing the payment terms or the interest that is being applied to it.
For these situations, it is necessary to have an intermediary to reach an agreement between the parties involved. Look for the best debt settlement companies to help you in such a situation.
How Does Debt Restructuring Work?
The debtor, not being able to make the payments as agreed in a previous commitment with the creditor, must modify the current deal to carry out a new one in which the specifications are adapted according to the conditions and processes established by the institution and thus extend the period, reduce interest through fixed payments or decrease the number of payments to cover the amount.
First, you must detect the signs that you cannot finish with your debt payments to approach the financial institution later and raise the situation in which you find yourself. This entity will tell you the terms for carrying out the restructuring. Once accepted, the necessary elements are negotiated to continue with the payments and thus pay off the total debt.
Do not resort to any additional loan to cover a debt since that will only worsen the situation and generate endless problems with debt in your finances.
When Can a Debt Restructuring Be Considered?
Earlier, debt restructuring should be considered when there is no other possible solution because there are future repercussions with a high financial cost.
If you do not have the necessary resources to settle them, or you prefer to end the debt faster by sacrificing interest, you can resort to this modification of your debt.
Aspects to Consider for a Debt Restructuring
If your economic situation is not the best, but you can finish paying the debt you have, pay it off as soon as possible since the bank can identify it, and you can end up worse than how you started. If your financial position has led you to these instances, you should consider the following:
- The entity must be notified 20 days before it is intended to start with the debt restructuring.
- Regardless of being able to cover the debt and having reached an agreement, it is possible to have negative repercussions on a small or large scale depending on the performance of this new agreement.
- Once the restructuring is carried out, commit yourself to pay the debt in an absolute way since, if you do not do so, it would be a failure to deal with, and the risks become worse.
Is a Debt Restructuring the Same as a Credit Repair?
Debt restructuring and credit repair are not the same procedure. This must be taken into account to know which one to carry out and the solutions that can be obtained from each of them.
In restructuring debt, the debtors are responsible for covering the payment of the same in its entirety. However, the results are not guaranteed due to the possible lack of information or experience when negotiating with creditors.
On the other hand, credit repair is carried out through repair companies such as, which negotiate a discount with the bank to make the payment that is finally agreed. Although both seek to cover the existing debt, one does so by adjusting the terms to finish paying off the total amount, while the other reduces it through negotiation with the bank.