There are basically two different types of debt – secured debt and unsecured debt. Debt consolidation relief companies usually deal with unsecured debt such as that which is not held by a recorded instrument. Car loans and mortgages as well as some federal loans are examples of secured debt.

Secured debt is that which has a security instrument attached to it. The instrument states what will occur if you default on the loan. In the case of a car loan being defaulted upon, the car is repossessed. In the case of a mortgage, the home is foreclosed upon and the bank takes over. There are certain other types of debt, such as court ordered child support, federal student loans and court judgments, that are not dischargeable and are considered to be secure debt. IRS debt is another example of debt that is not dischargeable through bankruptcy.

Unsecured debt include debt that is not held by any security instrument. Credit cards, loans from finance companies that are not secured with a car title, mortgage or a court order. Many credit counseling companies that offer debt relief work with unsecured debt only.

If the debt is secured by a legal instrument, the creditor can follow the terms of the agreement. Secured debt, however, can still be negotiated in many cases. In the case of a debt secured by a mortgage, a loan modification can be negotiated on behalf of the borrower to stop foreclosure proceedings. Most creditors are willing to offer a debt settlement to avoid having to enact legal measures.

If the debt is unsecured, there are several options when it comes to debt relief. Debt relief can be debt settlement where the creditor takes a portion of the debt or debt consolidation. A debt relief company can often negotiate a deal where the borrower is able to pay off their debt without the borrower having to go through a court bankruptcy.

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Debt settlement is an ideal solution for those who have debt and want to pay off a portion of it while still having it considered paid in full. This takes an amount of negotiating with the creditor who must agree to take a portion of the debt in lieu of the entire amount due.

Debt Settlement Firms

Most creditors will begin to place calls to those who owe them money to recoup the amount that is due as soon as the payments are late. They will continue to place those calls until such a time when they are forced to either begin legal action or sell the debt to a debt collection firms. Both of these options cost the creditor money. They can also give up on the debt entirely and write it off as a “charge off” on your credit. Most creditors will exhaust any and all options before they charge off the debt in an effort to collect anything.

Creditors know that if a borrower files bankruptcy or does not have the money to pay the debt, there is little that they can do to recoup their losses. For this reason, many are more than willing to take a portion of the money due as a debt settlement. They take the money and the debt is then canceled.

Debt Negotiation Companies

Debt relief companies can negotiate with creditors on your behalf to settle debt. This type of negotiation will work with various types of debt, including unsecured debt incurred by credit card expenses, medical debt and tax debt. Creditors are usually more than willing to take a portion of the money to insure that they receive some payment, rather than risk not getting any payment at all if the borrower files bankruptcy or just ignores the debt. Most creditors do not want to go through the trouble of pursuing legal action against borrowers unless there is a great deal of money owed.

It is better for borrowers who wish to settle their debt to use a debt relief company for negotiating the debt owed rather than try to do this themselves. The debt relief company not only has practiced negotiation skills when it comes to settling debt, but also has a good inclination for how low the creditor will go when it comes to settling the debt. Someone who tries to settle the debt themselves may end up paying more money in the settlement than the creditor is willing to settle for. Those who have some debt that they would like to take care of but who do not have the money to pay off in full can use the services of a debt relief company to settle their debt with various creditors. This can end up saving the borrower thousands of dollars.

admin | Debt | 06 28th, 2010 | 1 Comment »

When you are faced with debt, you have many options available to you with regard to reducing the debt. Some of the most common debt relief options are as follows:

Debt consolidation
Debt settlement
Loan Modification
Foreclosure
Bankruptcy

All of the above will work towards either reducing or absolving your debt. These debt relief options work differently, are used for different purposes and all have different consequences.

Someone who has amassed debt with credit card borrowing and other unsecured debt can opt for debt consolidation. This can work to reduce the amount of debt owed and allow those who are undergoing the consolidation to pay one monthly payment that is considerably lower than a multitude of monthly payments they were previously making to pay off the debt. This is an ideal choice for someone who wants to pay off their debt and maintain their credit while still being able to afford the payments.

Debt settlement can be used alone or in conjunction with debt consolidation. It can work to settle a tax debt as well as other unsecured debt. The borrower pays off a portion of the debt, an amount that is usually negotiated by a third party, and the debt is absolved. It works well to reduce the amount owed on any debt and maintain credit.

A loan modification is used to restructure a mortgage so that it is affordable for the borrower. This can mean lengthening the term of the mortgage and reducing the interest rate. It works for mortgages and can allow someone to avoid foreclosure and save their home.

Foreclosure is when a lender moves to take over property that has been secured with a mortgage or deed of trust. This can take anywhere from a couple of months to a year or more, depending on what state in which the property is located. It appears on the credit of the borrower for seven years and greatly reduces the credit rating. It will cause someone to lose their home. Other debt relief should always be tried before this option is invoked as it is a credit destroyer.

Bankruptcy can be a Chapter 7 bankruptcy or a Chapter 13. Most people today file a Chapter 13 which consolidates the debt. It is a court proceeding that is usually filed by an attorney. It can only address unsecured debt and cannot affect a mortgage. If you are not working and have no assets, Chapter 7 can wipe out your debt, although the cost to hire an attorney for this option is formidable. Both Chapter 13 and Chapter 7 bankruptcies appear on your credit report for 10 years and destroy your credit rating.

When you are seeking debt relief, you need to ask your self the following questions:

Do I have assets that I want to protect?
Do I have a job?
Do I have a way to pay back the debt?
Is there any money now that I can use to pay off part of a debt?
Do I want to save my home?
Do I want to save my credit?

Not doing anything can put you at the mercy of a creditor who may not only destroy your credit, but may pursue a legal action against you that can result in a judgment. A court order in favor of the judgment can be enforced to freeze any assets that you have as well as garnish your wages. Needless to say, doing nothing about your debt is not an option. You need to take action and decide which option is right for you.

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Debt consolidation works best if you have numerous credit card debts as well as other unsecured debt such as medical bills or loans from finance companies. You can use a debt relief company to help you with debt consolidation. They will work with your creditors to reduce the amount that you pay monthly. In many cases, the creditor will stop all late fees and penalties and reduce the interest amount.

A debt consolidation companies will take a look at the debt that you owe and figure out your monthly payments for all of your debt. They will then give you a figure on how much you can expect to pay each month to pay down the debt and how long it will take you to pay off the debt. If you agree to these terms, they will then act as your representative and begin dealing with your creditors.

If you are constantly hounded by creditors who are calling you for payments all of the time and are having a hard time paying the bills, this is the ideal option for you. If you want to pay off your debt but cannot afford the minimum monthly payments, and find that the fees and penalties each month are greatly increasing your debt, you can get everything to stop when you choose a debt relief company to represent you.

The debt relief company will contact your creditors and tell them that you have entered debt consolidation. They will then negotiate on your behalf a lower interest rate as well as lower monthly payments. In some cases, they can negotiate a lower amount due, perhaps eliminating current late charges and penalties.

Creditors will normally freeze your account once you have entered debt consolidation and will stop harassing phone calls to you. They will agree to take a monthly payment from the debt relief company that you can afford to make.

The debt relief company will then combine all of the payments that you have to make into one monthly payment that will be significantly lower than what you were making to all of your creditors. They will then help you work towards paying off your debt in a reasonable amount of time. The amount of time it takes you to pay off your debt through debt consolidation depends on the amount of debt that is due as well as the amount of your income.

If your circumstances change, you can contact the debt relief companies  or firms so that they can help negotiate new terms for you under their debt consolidation programs.

Debt consolidation plans work best when you use a debt relief company that has years of experience in dealing with creditors. They can negotiate a better deal for you than you would be able to on your own due to their expertise in this field. If you have unsecured debt that you wish to pay off but are having a hard time making the minimum payments, debt consolidation is the ideal choice for you.

Once your debts have been paid off, they will reflect as being paid on your credit report. There will be no mention of bankruptcy in your credit report.

admin | Debt | 06 28th, 2010 | 1 Comment »