Unsecured debt is money owed for medical bills, department store credit cards and regular credit cards. They’re not secured by an underlying asset or security. A good rule of thumb to distinguish between secured debt and unsecured debt is whether a creditor can take back any property to satisfy the debt.
If handled correctly, many times a creditor will accept 50% of the total amount or less to satisfy the outstanding balance — sometimes going as low as 25-30% of the outstanding balance. It all depends on the creditor or collection agency you’re dealing with and their individual policies and parameters.
Keep in mind that discounted lump sum settlement normally only apply to unsecured debts.
Secured debt is money owed on a vehicle, home or other personal property that can be repossessed (or liened) to satisfy a past due amount.
In addition, child support, alimony and student loans can usually be treated as secured debt in most cases even though no property is attached. Reason being, child support, alimony and student loans are difficult, and in some cases impossible, to discharge in bankruptcy. For this reason, these debts are usually treated as a secured debt.
Bankruptcy As A Last Resort
Bankruptcy can remain on your credit report for up to 10 years. Bankruptcy is also a matter of public record for anyone that wants to know. For some people this is a big deal, for others it is not.
For those who work in a sector that requires a security clearance or background check, this could put their jobs in jeopardy.
Filing bankruptcy also requires that you appear in Federal Court for one or more hearings.
It has been found, however, that by far the biggest reason that people do not wish to file bankruptcy is a matter of personal responsibility. In other words, the moral obligation to repay the debt. Most people are good, decent and honest and want to do the right thing when possible.
The Truth About Credit Card Debt Settlement
It’s true that settlement can be a good alternative to bankruptcy, but here are a few things you should know:
1. Regardless of what people might tell you, it is usually going to take months to reach a settlement with your credit card company. In many cases, a credit card company will not offer much if any settlement until your account is at least 4-6 months past due.
2. Your credit score will get damaged. This is the trade-off for substantial debt relief without the need to file bankruptcy.
3. You will continue to receive collection calls. Unfortunately this is a by-product of going through the debt settlement process. However, it’s not the end of the world and it will usually only be for a few months of your life.
Lastly, you can take the do-it-yourself approach to debt settlement or you can hire an experienced firm to assist you. People have achieved very good results with each method. It all depends on your negotiation skills, time available for this project as well as your comfort level in talking with debt collectors.
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