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How to Create Wealth After Debt Settlement
Most consumers who have gone through the debt settlement process do not think about ways to create wealth afterward. Here are tips to do just that.
The Settlement is Over!
You have completed the debt settlement process. Your overall debt has been reduced significantly, and you are relaxing in the knowledge that you can now afford to pay off what is left of the debt and have money left over each month. If you or your debt settlement professional was truly aggressive in the process, you may even have saved your credit rating. Now you must think the unthinkable – how to create wealth after the debt settlement.
That All-Important Credit Rating
The maintenance of your credit rating through the process of
debt settlement is one of the most important aspects of the activity. Most creditors are willing to negotiate this, and, hopefully, you have stood firm. They have agreed not to report the original debt as “turned over to collections” or “paid less than original amount” to any of the three credit bureaus. You are now making all payments on time, and your credit scores are rising nicely. You will need these good scores later on, so keep them up there!
The Beginning of a Wealth-Building Plan
You may begin small, but the goal is long-term, and if you stick with the plan, you can build wealth steadily, without horrible sacrifice.
Begin with a solid budget which allows for you to pay off your settled debt as agreed, without ever failing to make a payment on time. After necessities, you must set an amount that you will put into savings each month, again without fail. You have to look upon this as just another bill that you write to the savings or money market account each month. (If you start small, you will have to use a regular passbook savings account. Money market accounts usually require a minimum balance of $2500, but as soon as you have that much, switch over. The money market interest rate is higher). Once the money market account is substantial enough, leave four or five thousand in it and purchase longer-term CD’s. Again, the interest rate will be higher, so your money earns more. Remember, if any true emergency hits, your money is still liquid. While you will be penalized for cashing a CD early, you will have the security of knowing it is there if you truly need it. Decide in advance what would constitute an emergency, and vow not to use savings unless the emergency is within your decided guidelines.
As you get raises or windfalls, such as tax refunds, plan to add to your savings. Do not deny yourself a few luxuries along the way, as you will see saving as nothing but drudgery. So, buy something with some of that refund or windfall that you have truly coveted.
Use Your Excellent Credit Rating
You will receive lots of offers for low interest credit cards if your credit scores remain high. Transfer balances from higher interest bearing cards and loans to these new cards, cutting up the old cards when you do. Do not close the old accounts, however, as that will lower your credit scores. Watch the teaser introductory rates carefully. When they expire, transfer the balances again, with the goal of always paying 0% on your credit card debt. In this way, every penny you pay each month reduces principle by that amount.
The Great Result of Planned Savings
What makes money grow is compound interest. If you have $1000 in a regular savings account, and it is earning 4% interest, you are making $40 a year. Not much, you say. But the next year you will be earning 4% interest on $1040, and so on. Money market and CD rates are higher. Tax-free bond funds are available in every state. The money these earn is never taxed, and, if always reinvested, can really grow quickly.
If an individual at age 25 were able to save $285 a month, he would be a millionaire at age 60. If you have settled your huge debt for pennies on the dollar, it’s time to take the cash from those former payments and build your wealth.