Reduce Unsecured Debt
Friday, 30 July 2010 03:00Many consumers across the country are struggling with their large monthly payment obligations, and are having difficulties even affording the necessities they require to live comfortably. Some are unable to continue to pay their bills on time and are falling behind on their payments for their unsecured debt.
For many consumers, the most difficult types of debt to keep current with are their unsecured debts, mainly their credit cards, medical obligations and personal loans. Unsecured debts are obligations that are not supported by collateral and typically have higher interest rates. Secured debt, on the other hand, is debt that is backed by an asset, such as a home or a car. With secured debt, a creditor can often repossess the collateral if a consumer fails to make payments, and hence the interest rates are lower.
For consumers that are aiming to reduce how much unsecured debt they carry, there are a number of options. Consumers that are carrying several unsecured debt obligations with high interest rates can apply for a debt consolidation loan, in which a bank issues a new loan for enough money to pay off all their outstanding debt balances at once. However, consolidation loans can be difficult to qualify for because they often require a high credit score and sufficient income levels. For consumers that are approved, they can consolidate their debt into one single monthly payment at a lower interest rate. If consumers choose to pay more towards their principal balance every month than the minimum payment, they can get out of debt more quickly.
Another alternative for consumers to reduce unsecured debt is to seek a debt settlement or debt negotiation company that will work with their creditors to structure settlements at a reduced balance. While creditors may not normally consider settling if a consumer inquired directly, debt negotiation firms have relationships with the lenders to help structure these reduced settlements. Lenders would rather receive a partial payback of the balance they are due, rather than risk receiving no payment at all.
Debt negotiation Companies can typically reduce debt by somewhere between 40 and 60 percent of what is owed at the time of settlement. The challenge to this method is that it requires a consumer to have accumulated sufficient savings to make the settlements, which many consumers might not have readily available. Hence, it is very important that individuals find a good debt settlement company that helps them save money from the outset of the program, and thereby represents their best interests.