How to Lower Unsecured Debts

There are two kinds of debt, secured and unsecured. Mortgages and car loans represent secured debt, as creditors have the right to take the property back if the loan defaults. Alternately, unsecured debt, such as medical and credit card bills, does not require any upfront collateral to secure the debt. When people experience financial turmoil, they may rely heavily on credit to make ends meet. Stacks of bills and phone calls from creditors can be overwhelming, but by tightening your proverbial belt and taking charge of your finances, you will be able to lower your unsecured debt.

Instructions

1

Develop a budget. First write down your monthly income and your fixed monthly expenses such as car payments, rent or mortgage payments and insurance premiums. Next, record additional monthly expenses, such as recreation, entertainment and clothing. Prioritize essential expenses and cut out what you don't need. Finally, ensure that you make more than you spend and have enough left over to make more than just the minimum payments on unsecured debt.

2

Talk to your creditors. Approaching your creditors and trying to solve the problem with them shows initiative. If they don't hear from you or you don't return their calls, they don't think you care. Ask for lower interest rates and see if you can obtain lower monthly minimum payments until you're in a better financial position. If you can't make a payment, tell them ahead of time. It's also possible to get your due dates changed in order to avoid late payment fees.

3

Try a credit counseling agency. If you are unable to develop a budget of your own, a credit counseling service might help. Universities, non-profit organizations, credit unions and military bases offer these services for free or at a low cost. Counselors are certified and educated in the areas of consumer credit, money management and budgeting.

4

Consider bankruptcy. Bankruptcy is generally viewed as a last resort because it has damaging, longterm effects on your credit rating. It also costs at least several hundred dollars to file for bankruptcy. If you file for and are eligible for bankruptcy relief, a court will develop a repayment plan between you and your creditors. This plan often allows debtors to maintain possession of collateral on secured debts, such as a house for a mortgage or a car for an auto loan, and will wipe out what they owe on unsecured debt.