Settling Credit Card Debt

What is unsecured debt and how is it different from secured debt? Secured debt is debt that is backed up by collateral. For example, when you buy a house, you can take out a loan called a mortgage. The mortgage is backed up by your home. This means if you default on the loan, they can take away your house.

Unsecured debt is the opposite. This is debt that is not backed up by collateral. This means, if you stop paying back the debt, there is nothing they can take away from you. The most common type of unsecured debt is credit card debt.

That Problem Called Credit Card Debt

Credit card debt is a huge problem in the United States. It seems like just about anyone can get their hands on a credit card and, if used irresponsibly, Charge so much to it that they can't afford to pay back. Before you know it, the interest starts to build on the card and it is unbearable.

The biggest problem with credit card debt is that is grows so large so fast. At some point, it becomes so much that you can't even afford the minimum payments. The amount of money it takes to pay off the debt is so large and most of it is wasted money. This money that could go towards buying a house or saving for retirement is being thrown away on interest. Whatever you used to charge your credit card has now become the most expensive things you've ever bought in relation to its value.

It is hard to pay off this debt. Ideally, you will stop charging to credit cards, work hard to save every penny possible, and pay off that debt as soon as possible. Sometimes this is just too hard and thoughts of bankruptcy start to plague your thoughts. What can you do about your debt besides declare bankruptcy?

One way to handle the debt is by settling credit card debt. Settling credit card debt means you are negotiating a settlement with your creditors. Let's say you have $4,000 of debt on one credit card with one creditor. That creditor hassles you every minute they can, calling you at all hours of the day. You know you can't afford to pay them back, but you don't want to resort to bankruptcy. You make a deal with them that you will pay back $2,000 of the $4,000, which is 50% of it.

The creditor knows he will either get $2,000 or $0, so he agrees. Now what if that credit card only had a $1,000 limit? That means you are still paying 100% worth of interest on it, which probably includes a lot of penalty fees. The creditor gets back the amount they lent you 100%, plus they get the extra $1,000.

Now this isn't going to be the case every time. In fact, getting 50% off is really good and will be hard to get. Some creditors may refuse to lower your debt at all. If you have debt on a lot of cards, hopefully more creditors will give you a break than won't.

In order to start settling credit card debt, you need to do one of two things. You either need to set up a plan and start calling and negotiating settlements yourself, or you need to sign up with a debt settlement company.

The choice is yours and some will do better with one over the other. If you want to do it yourself, you have to be persistent and a good negotiator. This is not the kind of thing where you can call them up, make a nice request, and say 'okay' when they say no. You have to keep at it and you can't be afraid to talk to them. They will be ruthless.

On the other hand, using a debt settlement company for settling credit card debt has its advantages. The only disadvantage is that you have to pay, but considering they can save you a lot of money, that shouldn't be a problem. They should be good negotiators and they will talk to the creditors on your behalf, so you don't have to deal with them.