Ways to Settle Debts

Debts such as unsecured loans, credit cards and medical bills can become a headache and invade every part of an individual's life. For instance, unpaid bills can result in lawsuits, wage garnishments and a lower credit score. Debt can even cause trouble for a person wanting to buy a home. Therefore, settling debts has major advantages, such as eliminating the unpaid bills, stopping extra fees and charges or avoiding personal bankruptcy.

Negotiate a Settlement

One way to settle debts is to negotiate with creditors on your own behalf. This means contacting creditors and discussing paying a lower amount that the original debt owed. If creditors agree, you have two options: Pay in multiple payments until the debts are eliminated or pay one lump sum. However, if you agree to multiple payments and miss one payment, then creditors can start or continue their debt recovery options such as filing a lawsuit. Therefore, before calling creditors to settle debts, have enough money saved to make the payments and keep the accounts out of collections, Bankrate recommends.

Hire a Debt-Settlement Lawyer

Hiring a debt-settlement lawyer is another way to settle debts. The lawyer works on your behalf to negotiate a lower payment. You don't have to deal with creditors or worry about talking with them. Instead, the lawyer does all the work to find a better or more affordable payment and can provide legal advice on what debts to pay first. However, hiring a debt settlement lawyer costs money.

Use a Debt Relief Service

An individual can use debt-relief services such as credit counseling agency. A credit counseling agency creates a budget to follow so you can settle debts. You can take the budget and pay your debts on your own. Or you can use a debt management plan in which the credit counseling agency negotiates a lower payment with creditors. You are responsible for making monthly payments to the credit counseling agency and the agency sends the payments on to creditors. The downside of using a debt management plan is making sure that the agency actually pays creditors. Another disadvantage is that even if the agency pays, creditors can still sue.

Borrow the Money

If you take a debt consolidation loan, the lender pays off your unsecured debts. Then you make monthly payments to this lender. The advantage is that the original debts are settled. However, you still owe the money --- just to one creditor.