How to Settle Unsecured Debt

Unsecured debt is debt that is not secured by collateral. Some examples are bank credit cards, medical bills, student loans, personal loans and department store cards. This type of debt does not require that you put up any security for the debt, such as a home or a vehicle. In 2004, statistics show that one third of all adults have some form of unsecured debt. These numbers may have increased since then.

Instructions

Understand the Realities of Unsecured Debt

1

Become aware of the risks. Most consumers are clueless when it comes to the risks associated with taking on an unsecured loan or credit card. A creditor may take you to small claims court to have your wages garnished if you fail to pay the debt. In some cases, companies have even sent law enforcement to recover items purchased with an unsecured credit card.

2

Try a debt management service. A debt management service will contact your creditors to get them to stop the harassing phone calls to your home and work. They will also get them to stop charging you late fees as well as over the limit fees and in most cases they even reduce your annual percentage rate (APR). They can even reduce your monthly payment while paying your unsecured debt off in much less time because your payments will mostly be applied towards the balance and not to the interest charges.

3

Offer a cash settlement. Call your creditor and explain your situation and offer to settle the debt for pennies on the dollar. Some companies would rather receive some payment rather than nothing. Most larger companies have bad debt written into their annual plan. They already figure ahead of time that there will be a certain amount of debt that will not be repaid. They take it as a loss and move on. They may take cash offers to settle debt as a way to ramp up their end-of-year revenue reports for their investors. You'll not only settle your debt, but save a lot of money in the process.

4

File personal bankruptcy. There are two types of personal bankruptcy, chapter 7 and chapter 13. Chapter 7 should only be used if you have nothing to lose such as a home or a car. To qualify, you most have no money left over each month after you pay your monthly expenses. Chapter 13 is recommended for those individuals who have fallen behind on their payments due to a job loss or illness and cannot get caught up. Bankruptcy laws very from state to state and will have a derogatory effect on your credit report.