Though it's probably not widely understood, there is more than one variety of credit card debt payment assistance. All are designed to reduce your outstanding debt obligations and reign in previously unmanageable monthly bill payments, yet each employs differing sets of techniques to achieve this goal. An excellent place to start an exploration into these services would be with refining your understanding of the nature of your debts and how they may or may not be appropriate for debt relief.
Unsecured vs. Secured Debt
Unsecured debt is debt that is not accompanied by the terms of a security interest in assets or property associated with the obligation. With unsecured debt, the borrower instead agrees that, in the event of default (failure to pay), collections and legal actions may be enacted in pursuit of repayment. If the lender chooses to take legal action, a court judgment is obtained and carried out by such means as garnishing wages, imposing a levy on a bank account (essentially, this means that the lending company is permitted to seek payment by way of your funds that are held at your bank) or issuing a lien against your property. The most common forms of unsecured debt include credit card debt, personal loans, payday loans and medical bills. Secured debt, on the other hand, entails the borrower's promise of collateral and the repossession of the property in question should the borrower default on the account. The typical secured debt is a home loan or an auto loan.
What Kinds of Debts Qualify for Debt Relief?
It should be noted that negotiators deals almost exclusively with unsecured debts, as the terms governing secured interests give lenders far more leverage when it comes to collecting the total amount owed, leaving little if any reason to negotiate the amount owed. Only those unsecured loans like credit card debt that are overdue are eligible for the negotiation process.
Credit Card Debt Consolidation
A popular form of debt relief for credit card debt accounts, debt consolidation is one of the older methods of resolving floundering debts. This method involves taking out a loan which is used specifically for the purpose of paying off all defaulted credit accounts. Debt consolidation loans can either be secure or unsecured, and much of the determination of your choice of this kind of loan depends on your immediate financial situation. Secured debt consolidation loans usually take the form of a home equity loan, requiring the consumer to take out a second mortgage against a home's equity. Secured debt consolidation loans feature low rates of interest as compared to your former credit card debt demands. Your debts are paid off quickly and your multiple monthly bills are replaced with a single payment toward the loan, but the risks are great and foreclosure is a very real possibility under the circumstances. Of course, not everyone has home equity, therefore debt relief through secured consolidation and their characteristically low interest rates are not an option for every consumer. Absent collateral designations, unsecured debt consolidation loans are available with higher interest rates but little risk.
How Does Debt Relief Affect Credit Scores?
Although participation in debt payment assistance programs will negatively affect your credit score, consider the alternatives: choosing the more traditional course of credit card debt relief through a bankruptcy filing is far more detrimental to your rating. A bankruptcy declaration remains as a blight on your credit score for ten years and mars your public court records for twenty years. The negative impact of debt consolidation largely depends on how long it takes you to fully repay the loan. Those already in the midst of a credit card debt crisis already have suffered lowering credit scores and taking active measures to repay creditors now as opposed to spiraling further downward can only help recover a positive rating in the long run.
Additional Resources from Total Debt Relief
- Peer to Peer Credit Card Debt Relief - As the internet world grows increasingly more social so do other opportunities such as credit card debt. Find out what peer to peer credit card debt relief is and how it works.
- Credit Card Consolidation - A viable form of debt relief is debt consolidation. This option can work for various outstanding debt. This covers the methods in which credit card debt can be consolidated.
The decision to reach out for help with your debt is not one that's easy to make. You were raised to "do the right thing", but now it's nearly unbearable. You struggle along while your creditors are turning up the heat. And now you're at the point where the late fees, penalties and interest expense make it impossible to keep your head above water.
Ask yourself this. If you could eliminate your debt without permanently damaging your credit, why wouldn't you?
