How to Legally Reduce Unsecured Debt

Unsecured debts, especially credit cards, are a huge problem for many American consumers. High interest rates, exorbitant fees and high credit limits often leave consumers swimming in debt. If you have an overwhelming amount of credit card debt and cannot dig yourself out of the hole, you have two options for legal debt reduction: settlement and bankruptcy.

Instructions

1

Exhaust all other strategies for debt reduction. This includes making drastic cuts in your budget to free up more disposable income, working extra hours or a second job, working with a credit counselor or consolidating all loans to create lower payments. Both debt settlement and bankruptcy are detrimental to your credit.

2

Settle only some of your debts, if you choose this option. You should settle the most delinquent accounts. However, if you have less delinquent accounts that have much higher balances, you should settle these instead. The goal is to relieve yourself of the monthly burden.

3

Contact a debt settlement company or contact the creditors yourself to begin negotiations. Check the reputation of any debt settlement agent through the Better Business Bureau before handing over personal information.

4

Check all of your account statements before beginning debt settlement negotiations. You will likely need to be seriously delinquent to settle. In addition, make sure you have some cash on-hand. Creditors are unlikely to settle unless you first make a good faith, lump sum payment indicating your intent to begin repayment.

5

Get a copy of the settlement agreement in writing before signing it. Review it carefully with a trusted advisor--like a family attorney--before you agree to it.

6

Hire a bankruptcy attorney, if you choose this option. You do not necessarily need one, but he will certainly help you file the correct paperwork. Choose between Chapter 13 and Chapter 7. Chapter 13 is when the courts stop collection calls, restructure your debts and place you on a repayment plan. Chapter 7 is when all debts are cancelled and the courts seize and sell your assets to recoup the losses.