Use Debt Settlement To Save Money

As credit card companies constantly increase rates and charge huge fees to their borrowers, debt settlement and debt management is becoming more widespread. Debt settlement is the process of reducing or eliminating a percentage of a debt and creating a payment plan that will get you completely debt free in just a matter of months or a few years. Most unsecured (credit card) debt could take decades to pay off if just the minimum is paid every month, so seeing relief in just a few months or years is a very welcome result for most borrowers.

It should be noted that debt settlement is usually reserved for unsecured debts such as credit cards and personal loans. Secured debts, such as car loans or mortgages are not typically included. This is because secured types of loans have collateral to back them up. If you do not pay, the bank will simply take back the car with a repossession, or the house with a foreclosure. One possibility to eliminate these debts or to pay them back on a more affordable schedule is Chapter 13 bankruptcy. The main problem with bankruptcy is the length of time it stays on your credit even if you are successful in making all of the payments. In many instances, debt settlement would be a better solution than filing bankruptcy.

With a typical debt settlement plan, a portion of the unsecured debt may be eliminated and new repayment terms are structured to make the payment more affordable on a monthly basis. This can also be done by extending the term of the loan and lowering the interest rate. Debt settlement can also be considered one alternative to foreclosure if you want to keep your home, as it can eliminate or reduce other bills and free up money that can be put towards a repayment plan or loan modification. A debt settlement plan will make your bills affordable again and has very little effect on your credit. In fact, it should begin to improve your credit, assuming you have not done anything else to decrease your score at the same time.

To qualify for debt settlement with many companies and creditors, you will need to prove that you have experienced a hardship and that a modification of the debt would make your bill payments affordable for the long term. Many lenders will want you to be behind on payments before approving such a plan, but that is not required in debt settlement cases. Even if you are current, if you can show that the payment is not affordable and you will not be able to pay it for the long term, a good negotiator should be able to get you approved for debt settlement.

If you are facing foreclosure, a loan modification should be applied for at the same time as debt settlement in order to reduce all of your bills to a more manageable level. Ideally, you want to negotiate so that all your creditors improve your payment terms. Asking all your creditors to lower their rates a little or accept a little bit less for late fees and other charges is easier than asking one of them to reduce their payment a lot. If you can save a little bit from each bill, you may not have to get a huge reduction of your payment on the mortgage, which will make it easier to qualify for the mortgage modification.

In any situation, your credit will be effected to some extent, and this will be the case for debt settlement. However, if you are no longer able to make your payments, or if you have already gone into default or foreclosure, then you will not be approved for new credit anyway. Most people only use their credit to obtain new substantial loans once every four years (for purchasing a new car or refinancing a home), so this will give you plenty of time to improve your credit while using debt settlement to become debt free. This is much better than a bankruptcy that can remain on your credit for ten years.