Can You Go Through Debt Settlement on Only a Portion of Your Bills?

So, you're feeling mired in debt and want to try settling your balances for a lower total and a single, smaller monthly payment. It is possible to keep certain debts out of the settlement. However, the method you choose to settle--with a debt-settlement company, an attorney, on your own or perhaps with a nonprofit debt management service--can determine which debts will be settled and which are kept intact.

Types of Debt

It's tempting to include all unsecured debt into one lump-sum settlement for a single, reduced monthly payment, but this isn't necessarily a good idea. Unsecured debts are those such as credit cards and other loans for which the borrower offered no collateral. Refinancing mortgage and car debts are intentionally excluded here, because the house and vehicle assets are collateral that secure the loans. If you are having difficulty meeting the payments on your unsecured debt, then settling for lower payments could be warranted.

Considerations

Generally, you should leave yourself protected, so that you can cover sudden medical or car repair bills or other emergency expenses. "You should keep one credit card for emergencies," says David Fernandez, a Houston attorney who specializes in debt settlement. "Some (debt settlement) companies will tell you to cut up all your credit cards, but that can be risky."

Fernandez also says you should make sure there's money left at the end of the month, after you have covered all payments owed to others. If not, declaring bankruptcy may be the proper choice, he says.

Companies

Settling can give you a feeling of freedom from excessive debt.

One option when settling debt is to use a debt-settlement company. "The reason to use a debt settlement company is because we have a team of experienced negotiators who settle in bulk with the creditors," says Daniel Tilipman, president of the settlement company National Relief. "A lot of the time, we can leverage our volume of business with creditors to get excellent terms, such as 20 to 30 percent of the original balance."

Attorney

You have the choice of settling your debts yourself, which may be a good choice if you have negotiating savvy. Then you can pick and choose which debts you wish to include, but be careful. If you exclude too many, you'll defeat the purpose of settling. However, if you're facing a lawsuit, you may want to hire an attorney.

Nonprofit Agencies

You can use a nonprofit financial management agency to settle your debts. These groups help consumers pay down debts, while counseling them on all aspects of their finances. "We take a comprehensive approach," said Kim McGrigg, national spokeswoman for Money Management International."