There are many reasons that you may find yourself with huge amounts of debt that you may not be able to pay off. These include loss of job, medical expenses, or poor financial management. Debt consolidation combines bills into one debt that you pay monthly whereas debt settlement reduction negotiates unsecured debts to a lower, more manageable payment with each creditor. You can successfully reduce unsecured debt if you approach it systematically.
Determine if Debt Reduction is Right for You
If your debt is the result of financial naivete or mismanagement, you may be a suitable candidate for credit counseling and consolidation. This can help you get back on track to paying obligations and learning to keep yourself in the black in the future but generally does not reduce the amount of debt you owe. These methods create a plan based on existing debts (secured and unsecured). But if you are trying to refrain from a bankruptcy, which stays on your credit history for seven years, you may be a candidate for debt reduction. An ideal candidate is someone who has no secured credit such as a mortgage but is no longer able to pay the existing debt under the current account requirements. Basically you have no other assets to pay the debt off nor the income to meet monthly minimum requirements. Creditors know what you have and don't have. Remember they have your social security information. If they see that their only option is to reduce the amount you owe or charge the amount off, many will try to find a solution.
Reduction Assistance
You have decided that credit counseling is not an option and that you want to try to pay the unsecured credit off, preventing bankruptcy. Now you need to figure out how to negotiate a reduction. There are companies that will do this such as DebtFreeAfterAll.com or FixDebt.com. These companies do charge a fee to help you renegotiate the amounts owed. But if you are at the end of your rope and don't think you can do it yourself, this is a great alternative. But beware of companies that ask for fees upfront; many are scams. Most of these places work on a percentage, often about 15 percent of the total debt you owe which can be be paid in installments. These places generally don't accept people who have less than $10,000 in unsecured debt but can often reduce the amount you owe anywhere from 30 to 60 percent.
Do-It-Yourself Debt Reduction
If you are trying to negotiate this yourself, make a list of all the unsecured debt you have (credit cards, medical bills, personal loans, overdue utility bills and unsecured bank loans). Once you have the list, total it up and determine a reasonable amount you can pay for the total debt and then factor that into how much you can pay each lender. Contact each lender and state your desire to find a way to work with them. If you have credit card fees that have skyrocketed, ask to have the card canceled stopping new fees, and give them an amount you are willing to pay for the total owed. Start with 60 percent of the value. Depending on how far behind you are, you may find lenders very eager to claim some of the money. Always get the agreement in writing and note the contact information of anyone you speak with. This is to protect you in the event that you send in an "agreed payment" based on a reduction agreement and later receive a bill as if the conversation never took place, leaving you with the same balance and payment due that you had prior to the phone agreement.
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