Settling Unsecured Bad Debt With Your Creditors

Jan. 16, 2013 - PRLog -- When a consumer maxes out their credit cards and are getting deeper in debt, they are most likely feeling overwhelmed. Consumers then need to slow down, and consider how they can get out of the red without spending a whole lot of green.

Working with a debt settlement company is one option for dealing with debt. Debt settlement programs typically are offered by for-profit companies, and involve the company negotiating with the creditors to allow consumers to pay a “settlement” to resolve the debt. The settlement is another word for a lump sum that's less than the full amount the person owes. To make that lump sum payment, the program asks that the debtor set aside a specific amount of money every month in savings. Debt settlement companies usually ask that the debtor transfer this amount every month into an escrow-like account to accumulate enough savings to pay off a settlement that is reached eventually. Further, these programs often encourage or instruct their clients to stop making any monthly payments to their creditors.

Debt Settlement Has Risks

Although a debt settlement company may be able to settle one or more of the consumers debts they should consider the risks associated with these programs before they sign up.

These programs often require the debtor to deposit money in a special savings account for 36 months or more before all the debts will be settled. Many people have trouble making these payments long enough to get all (or even some) of their debts settled. They drop out the programs as a result. Before a debtor signs up for a debt settlement program they should review their budget carefully to make sure they are financially capable of setting aside the required monthly amounts for the full length of the program.

Creditors have no obligation to agree to negotiate a settlement of the amount the debtor owes. So there is a chance that the debt settlement company will not be able to settle some of the debts even if they set aside the monthly amounts the program requires. Debt settlement companies also often try to negotiate smaller debts first, leaving interest and fees on large debts to grow.

Because debt settlement programs often ask or encourage a debtor to stop sending payments directly to their creditors, they may have a negative impact on their credit report along with other consequences. For example, these debts may continue to accrue late fees and penalties that can put a person further in the hole. They may also get calls from creditors or debt collectors requesting repayment. They could even be sued for repayment. In some instances, when creditors win a lawsuit, they have the right to garnish a debtor's wages or put a lien on their home.

Working with a debt settlement company is just one option for dealing with debt. A consumer also could negotiate directly with their credit card company, work with a credit counselor, or consider bankruptcy. A free consumer help site called Bad Credit MD has more information on dealing with these issues at http://www.badcreditmd.com/settling-unsecured-bad-debt.html.

Bad Credit MD, is a  free On-line information guide that helps people with credit problems in Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

Bad Credit MD has been in business helping consumers with bad credit since April of 2007 and is a subsidiary of Enticing Designs Publishing. The staff has various backgrounds in the financial and mortgage industry. This self-help site has over 500 pages of credit advice and articles. Its staff has researched its information with various governments around the world to provide the most comprehensive and accurate information free of charge.