Settling credit card debt, unpaid medical bills and unsecured loans are of fundamental importance when a borrower’s debt-to-income ratio is excessively high. Unsecured debt settlement is one of the most effective ways to pay off debt before the problem gets any worse. Those who owe a smaller sum of money may find that a Debt Management Plan is more suitable for their personal circumstances.
Unsecured Debt Settlement
A debt settlement program can help to restore order to personal finances through a combination of a personal debt reduction and restructuring the remaining sum to improve affordability. The intermediary will take 15% of each monthly contribution as a fee and disseminate the remainder to creditors. Never agree to pay management charges up-front as it will delay creditors receiving their payment for several months.
A debt settlement program involves a professional negotiator liaising with creditors to agree upon a reduction of up to 50% to the principal. It is very important to understand that this reduction doesn’t come into effect until the final repayment has been made. This is to ensure that the debtor conforms with the terms of the new voluntary agreement.
Affordable Monthly Repayments
A debt settlement program can dramatically improve affordability. The actual term of repayment will depend upon the level of unsecured debt, but settling credit card debt, loans and unpaid medical bills will typically be achieved between 12 and 36 months. A further extension of the term is not recommended as it substantially decreases the likelihood of creditor acceptance.
A debt settlement program may only be a voluntary agreement, but it helps (although is not guaranteed) to prevent unwelcome creditor communication. This is because an affordable repayment plan has been put into place for settling credit card debt. Creditors simply want to recover as much of their money as possible so this unsecured debt relief program helps them to achieve this objective.
Improved FICO Credit Score
Those entering unsecured debt settlement programs will normally have missed payments on credit agreements so have little to lose. Settling credit card debt, unpaid medical bills and other unsecured debts will help to address the borrower’s debt-to-income ratio which accounts for up to 25% of the overall FICO credit score. This leaves the individual better placed for the future.
Unsecured debt settlement is amongst the most effective ways to pay off debt. Try to keep the term of the agreement as short as possible as it decreases the likelihood of creditor litigation. Always consult a qualified non profit debt counselor to make sure that the right debt solution is chosen.