Qualifying for Debt Settlement or Reduction

You may be able to obtain a debt settlement or reduction by working with a credit counselor, who, in turn, can negotiate the terms of such a settlement with your creditor(s). Under a typical debt settlement agreement, you agree to pay a certain percentage of your existing debt owed to a creditor within a specific time period. Ultimately, you end up paying less than you owe on a particular debt, and your creditor recoups some of your debt without the expense of going through the legal default process. As debt settlement is an attractive option for many consumers, you should be aware of the qualifications for a debt settlement or reduction.

Credit Cards and Unsecured Debts

Only debts that are unsecured by collateral, including credit cards, are eligible for debt settlement or reduction programs. On the other hand, secured debts such as mortgages and vehicle loans are not eligible, nor are legal obligations such as child support and alimony. Therefore, you may not benefit from a debt settlement program if your debt is largely comprised of secured, rather than unsecured, debts.

Ability to Pay Down Debts and Agency Fees

An essential component of any debt settlement or reduction program is the debtor's ability to at least partially pay off debts. Even though the debts are reduced or forgiven to some degree, the debtor still will be responsible for paying off the remainder of the debts on a certain payment schedule, over a specific period of time. As a result, in order to qualify for a debt reduction program or settlement, you must have sufficient income to make the debt payments. Thus, an unemployed debtor or one with no reliable source of income may not qualify for a debt settlement or reduction. Furthermore, most debt settlement or reduction agencies charge fees, which may be a percentage of the amount of the debt reduction. In addition to regular debt payments, then, the debtor is responsible for these debt settlement or reduction agency fees.

Contacting an Attorney for Advice

If you need assistance with choosing a debt settlement or reduction plan, or other alternatives to dealing with overwhelming, you should strongly consider contacting an attorney for advice. An attorney who is experienced in consumer debt matters can help you explore all available options for dealing with your debt, which may include debt settlement or reduction plans, consumer credit counseling, and even bankruptcy.