There are essentially two basic categories of debt: secured debt and unsecured debt. When it comes to debt consolidation and debt negotiation, the kind of debts you have may determine what steps you can take to help pay down or get rid of your debts.
Here we will look at the two kinds of debts and your ability to renegotiate with your creditors with these debts.
Secured debts use a piece of personal property (think house or vehicle) as collateral in the event the debtor does not make good on making payments or ends up defaulting on the loan. When you get behind on paying back these debts, you will not be able to negotiate new terms nor include secured debts within a consolidation plan. Instead, the creditor will take the collateral used on the loan in order to settle the debt. In other words, if you default on your home or car loan, your creditor will take possession of the car or home on which you defaulted. They will then sell the collateral in order to secure reimbursement for your default.
Types of Secured Loans
- Automobile Loans
Unsecured debts are held solely based on the signed commitment to repay the loan under the specificed terms and conditions. In order to qualify for an unsecured loan, you will need to have a good credit history and a high credit score. Unsecured loans will likely permit a debt negotiation with the creditor. Since they have no other guarantee that you will pay back the money you owe, creditors are willing to offer settlements of debts.
Types of Unsecured Loans
- Credit card accounts
- Personal loans
- Student loans
- Medical Bills
When debts get out of control and consumers are starting to get contacted by debt collectors, it is important to know your rights concerning debt settlement and negotiation. Many collectors will balk at accepting any kind of settlement offer, mostly because they work on commission and will do pretty much anything to get the highest amount of money they can from a debtor. If you are a debtor and owe more than you can possibly pay back, you might be able to negotiation terms, sometimes for payments as low or lower than half of the original debt. It will depend on the amount you owe, your payment history, and the reason you are unable to pay. Most debt settlements are done on a case-by-case basis so what one creditor is willing to do for you, the other may completely refuse to accept a settlement.
If you have the type of debt that can be included in a settlement negotiation, be sure you document all of your communication with the creditor or debt collector. Any arrangements made should be made in writing and a copy should be kept in a file for safe keeping to ensure the debt was in fact resolved. When a settlement is reached, most creditors/collectors expect a lump sum payment to settle the debt so don’t jump at just any offer you get. You may not be satisfied with the first or even third suggestion for settlement amount, nor do you have to be. Don’t appear too eager to reach an offer but rather work with the creditor on terms you can both agree to and an amount you can actually afford to pay off.