Unsecured debt relief means that it is possible to settle medical bills, unpaid credit card debt, small loans and repossession deficiencies. Whilst a debt relief program does not usually help the debtor's FICO credit score, it is considerably better than a delinquent account that attracts unwelcome creditor contact.
Why is Unsecured Debt Relief Necessary?
An account isn't normally left delinquent because the debtor doesn't want to pay their bills. Excessive personal debt often means that expenditure exceeds income leaving the borrower with no alternative other than to default on their credit agreements.
Financial difficulties can occur for a number of reasons, including unemployment, poor health and divorce. The sooner the debtor seeks assistance, the easier it is to overcome any problems. Unfortunately, many individuals who are struggling with debt wait too long before seeking expert help and guidance.
How Unsecured Debt Relief Can Help
A Debt Management Plan or debt settlement program aims to improve affordability and/or reduce the amount owed. This involves defaulting on the existing terms of one or more credit agreements in order that an affordable monthly repayment can be made.
Entering the best debt solution will help to address an income-to-debt ratio that is stubbornly high, but it will also be reported to the three leading credit reference agencies. This will normally show on credit reports for a period of 7 years which can make it difficult to borrow money.
Debt Management Plan
This option helps a consumer to benefit from unsecured debt relief through greater affordability. Following a budgetary analysis by an intermediary, it will be determined what the client can realistically afford to offer creditors.
Rather than making lots of small payments with respect to unpaid credit card debt and small loans, the debtor makes a single payment to the intermediary. As part of the 15% management fee, they will distribute the proceeds to creditors each month.
Whilst no debt is written-off under a Debt Management Plan, most lenders will no longer add interest or charges. This will help the borrower to pay-off personal debt than would otherwise be possible, albeit at a reduced rate.
Debt Settlement Programs
This source of unsecured debt relief is normally preferred by those who owe a larger sum of money. Following negotiations with creditors, it is normally possible to write-off up to 50% of the principal (the amount owed). The remaining debt is typically repaid over a 12, 24 or 36 month period.
It is sometimes possible to extend the term of a debt settlement program, but this is rarely a sensible strategy. Creditors are far less likely to agree to the extended term. The longer a repayment plan lasts, the greater the likelihood of an unfavorable change of personal circumstances.
Unsecured debt relief can be achieved through either a Debt Management Plan or debt settlement program. In order to proceed with either solution, the debtor will need to have some disposable income to offer to creditors each month. Always seek advice from a qualified debt counselor before proceeding.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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