How does Debt Settlement and Debt Reduction work?
What is debt settlement?
- Debt Settlement is an agreement between a creditor and a debtor to fully satisfy a debt for less than the amount owed. The effective legal process of debt settlement is often referred to as debt arbitration or debt negotiation. In reality debt negotiation is the process that's used to achieve a pre-approved debt settlement agreement.
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How?
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It's a little known fact that something is always better than nothing. The best thing you can do as the debtor is to stay calm and committed to achieving your goal of avoiding bankruptcy and living a debt free life. Call us today and take the first step towards debt freedom.
Secured vs. Unsecured Debt
Secured
Secured debt is debt secured by collateral, or assets. Examples of secured debt include a car loan or a mortgage. If you default on your secured debt, your creditors maintain the right to confiscate the assets that back your loan. For instance, if you default on your car loan, your creditors can confiscate your car.
Unsecured Debt
Unsecured debt, on the other hand, is not backed by any collateral. You obtained the unsecured loan because you have good credit, and the creditor believes you will be able to repay the loan. The creditor is therefore willing to risk extending you an unsecured loan. Examples or unsecured loans include credit cards, medical bills, and lines of credit. If you default on these debts, the creditors have no way of guaranteeing repayment through asset confiscation.
Unsecured Debt and Debt Settlement
Debt settlement is typically not successful in reducing secured debt. But it is successful in reducing unsecured debt. In times of financial hardship, since creditors have no guarantee of repayment, they are willing to reduce the total amount of debt you owe them. Otherwise, you may declare bankruptcy, and they may receive nothing. They would rather receive a reduced amount than risking receiving nothing at all.
The Role of the Debt Settlement Company
In the debt settlement process, a debt settlement company will act as a mediator. They will assist you in negotiating a reduced debt obligation with your creditors. They are your advocate, and will work to reduce your monthly payments to a reasonable amount, given your current financial situation. In this way, you can achieve debt relief and debt reduction without declaring bankruptcy.
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