Debt settlement reduction is a popular strategy for tackling excessive unsecured debt. A large number of U.S. citizens borrowed far too much during more prosperous times and are now finding it difficult to keep up with their existing debt repayment plans. Rising unemployment, a shortage of overtime, reduced bonuses, failed relationships and poor health are the main reasons for financial difficulties.
Debt Settlement Reduction
It is possible to achieve debt relief through a combination of better budgeting and/or a debt relief program. If affordability cannot be achieved by reducing spending, debt repayments can be restructured. Unless the underlying problem is tackled, money problems will only get worse. Improved affordability is fundamental to becoming debt-free.
A responsible provider will work with their client to see if improved budgeting can address the income/expenditure disequilibrium. This could involve reducing social expenditure or increasing income through a second job. Whilst not a panacea, non profit credit counseling services are able to assist up to 40% of their clients through better budgeting.
Unsecured Loan Debt and Credit Cards Vs Secured Debt
Anyone considering debt settlement reduction will need to establish the difference between secured and unsecured debt. A line of credit that is secured on an asset (car loan, mortgage) will not be eligible for debt relief. Student loans, alimony and taxes owed to the IRS are not eligible either. However, it is possible to negotiate credit card debt, unsecured loan debt, repossession deficiencies and unpaid medical bills.
How Debt Settlement Reduction Works
Should it not be possible to balance income and expenditure, a debt settlement solution can be used to improve both affordability and the client’s debt-to-income ratio. A professional advisor will negotiate with creditors to secure a reduction to the principal (amount owed) by up to 50%. A debt repayment plan is then devised to clear the remaining balance over a 12, 24 or 36 month period.
Debt Settlement Reduction Fees
The intermediary will normally charge a monthly fee of 15%. This means that if the client sends a payment of $300 to the intermediary, $255 will be distributed to creditors. Whilst nobody minds paying a fee for an excellent service, a number of debt settlement companies front-load fees. Paying fees in-advance should be avoided as it increases the amount owed and can lead to further problems.
A debt settlement reduction plan can help a client to tackle unsecured loan debt, unpaid medical bills and credit card debt. However, it is not appropriate for dealing with secured debts and student loans. Those who owe a smaller sum of money may wish to consider a Debt Management Plan. Always consult a qualified debt counselor before proceeding with a debt solution.