As credit card companies continue to increase rates and violate their customers, debt settlement or debt management is becoming increasingly popular. Debt settlement is the act of eliminating a percentage of the debt and entering into a repayment plan that will get you debt free in just a matter of months or years. Some credit card debt could take nearly a lifetime to pay off, so seeing relief in just a few months or years is a huge relief for most people.
But debt settlement is generally only for unsecured debts. Other debts, such as {second mortgages or first mortgages are not included. This is because these types of credit have collateral to back them up. If you do not pay, the bank will simply take away the collateral with a repossession, or the home, with a foreclosure. One way to eliminate these debts or to pay them back on a more affordable schedule is bankruptcy. The main drawback with bankruptcy is the amount of time it remaindstays on your credit. In most cases, debt settlement and a loan modification would be considered better than bankruptcy.
A loan modification is similar to debt settlement in that a piece of the mortgage debt may be removed and new repayment terms are structured to make the payment more affordable. This can be done by extending the term of the loan or lowering the interest rate. A loan modification is though of one of the best alternatives to foreclosure if you want to keep your home. It will make your house affordable again and has very little damange on your credit. In fact, it should begin to improve your credit, assuming you have not done anything else to lower your score.
To qualify for a loan modification, you will need to prove that you have experienced a hardship and that a modification would make your mortgage payments affordable for the remaining life of the loan. Many banks will want you to be behind on payments before allowing a loan modification, but that is not required. Even if you are current, if you can show that the payment is not affordable, a good negotiator should be able to get you qualified.
A loan modification should be applied for at the same time as debt settlement. Ideally you want to show all your creditors improving your payment terms. Asking all your creditors to improve a small amount, is easier than asking one of them to reduce their payment a lot.
In any situation, your credit will be effected to some degree, but when you are no longer able to meet your payments, or if you have already missed payments, then you wont be approved for new credit regardless. Most people only use their credit once every 4 years, so this will give you plenty of time to improve your score and become debt free. This is much better than a bankruptcy that can persist on your credit for 10 years.
Author-Bio: Nick publishes articles for the My Foreclosure Lender website. These articles provide information to families dealing with foreclosure, describing various solutions they can use to stop foreclosure. The site describes various options, including mortgage modification, foreclosure loans, deed in lieu, filing Chapter 13, and more. Visit the site to find out more about how foreclosure works
