What Kinds of Credit Can Be Settled?

If a settlement is becoming a necessity for you to overcome your debt obligations, you need to be aware that not all debts can be settled. However, if you are struggling with unsecured debts, then you will be able to begin the process of debt settlement. Secured debts, however, cannot be settled no matter what your circumstances.

What are Unsecured Debts?

Unsecured debts are those against which there is no collateral. For example, unsecured debts commonly arise from items, such as home improvement loans or vacations. Unsecured debts can be commonly accumulated on credit cards. Other items that are commonly considered unsecured loans are personal lines of credit, medical bills or personal loans that are unsecured. These are the only types of debts that can be settled.

What are Secured Debts?

If you have a secured debt, you cannot settle it. A secured debt is attained by offering collateral in the event you cannot pay back the loan. For example, your mortgage is a secured loan -- in the event you cannot meet your obligation -- the lender can claim your property. Other items that are considered secured are car loans, IRS tax debts and utility bills.

Beginning the Settlement Process

Debt settlement is usually a last resort before filing for bankruptcy. Creditors will often be willing to settle with you because there is little possibility that you will be able to pay back your balance and the prospect of filing for bankruptcy means that there is a remote chance they will be able to get any return for their money. You can either try contacting your creditors on your own or working with a debt settlement agency to settle your debt.

Warning

If you will enter into a business relationship with a debt settlement agency, ensure that you have checked with the Better Business Bureau as to the satisfaction other customers have had with the company. This is because many have complained about various companies for a number of items, such as fees. An agency will likely charge you a percentage of your debt savings, plus monthly fees.