Pelham Bell Pottinger

Do you have unsecured debt? Reduce it now

debt1Stressful economic times can put you in a position that makes meeting your monthly payments difficult, if not impossible. If you have unsecured debt, you can attempt to lower it. Here are some options.

Develop a budget

First write down your monthly income and your fixed monthly expenses such as car payments, rent or mortgage payments and insurance premiums. Next, record additional monthly expenses, such as recreation, entertainment and clothing. Prioritize essential expenses and cut out what you don’t need. Finally, ensure that you make more than you spend and have enough left over to make more than just the minimum payments on unsecured debt.

Talk to your creditors

Approaching your creditors and trying to solve the problem with them shows initiative. If they don’t hear from you or you don’t return their calls, they don’t think you care. Ask for lower interest rates and see if you can obtain lower monthly minimum payments until you’re in a better financial position. If you can’t make a payment, tell them ahead of time. It’s also possible to get your due dates changed in order to avoid late payment fees.

Try a credit counseling agency

If you are unable to develop a budget of your own, a credit counseling service might help. Universities, non-profit organizations, credit unions and military bases offer these services for free or at a low cost. Counselors are certified and educated in the areas of consumer credit, money management and budgeting.

Consider bankruptcy

Bankruptcy is generally viewed as a last resort because it has damaging, longterm effects on your credit rating. It also costs at least several hundred dollars to file for bankruptcy. If you file for and are eligible for bankruptcy relief, a court will develop a repayment plan between you and your creditors. This plan often allows debtors to maintain possession of collateral on secured debts, such as a house for a mortgage or a car for an auto loan, and will wipe out what they owe on unsecured debt.

Exhaust all other strategies for debt reduction

This includes making drastic cuts in your budget to free up more disposable income, working extra hours or a second job, working with a credit counselor or consolidating all loans to create lower payments. Both debt settlement and bankruptcy are detrimental to your credit.

debt2Settle only some of your debts, if you choose this option

You should settle the most delinquent accounts. However, if you have less delinquent accounts that have much higher balances, you should settle these instead. The goal is to relieve yourself of the monthly burden.

Contact a debt settlement company or contact the creditors yourself to begin negotiations. Check the reputation of any debt settlement agent through the Better Business Bureau before handing over personal information.

Check all of your account statements before beginning debt settlement negotiations. You will likely need to be seriously delinquent to settle. In addition, make sure you have some cash on-hand. Creditors are unlikely to settle unless you first make a good faith, lump sum payment indicating your intent to begin repayment.

Get a copy of the settlement agreement in writing before signing it. Review it carefully with a trusted advisor–like a family attorney–before you agree to it.

Hire a bankruptcy attorney, if you choose this option. You do not necessarily need one, but he will certainly help you file the correct paperwork. Choose between Chapter 13 and Chapter 7. Chapter 13 is when the courts stop collection calls, restructure your debts and place you on a repayment plan. Chapter 7 is when all debts are cancelled and the courts seize and sell your assets to recoup the losses.