What Is A Debt Settlement Loan?

You may have heard about federal government bailouts for banks and big businesses. You may also have heard ads on television or on the radio that claim that you can get a “bail out” for your own credit card debt, to help you get back on your feet, and eliminate up to 50 percent of your debt. The process by which this happens is called debt settlement, and there are a number of different ways in which it occurs. One method for this is a debt settlement loan. What is a debt settlement loan, and how do you go about getting one? The answer to this question will help you decide whether debt settlement loans are right for you.

Definition of a Debt Settlement Loan

A debt settlement loan is a loan offered by a debt settlement company that pays off your existing debt, and then consolidates it into one single monthly payment at a lower interest rate which you make directly to the debt settlement company over a predetermined and specified loan term. In many cases, a debt settlement loan might have a monthly fee or other small charge for the convenience, as your debts have been paid and you are making one affordable payment instead of many small ones going to many different places at many different, higher interest rates.

Other Ways Debt Settlement Loans Offered

Debt settlement loans may also be offered conventionally through a bank, but the terms are typically more strict, as the debt is considered unsecured. Traditional secured debt, like a car loan, means that there is a physical asset which guarantees that the debt will be repaid, or the item can be seized and sold. Unsecured debt has no such guarantee, so the banks and loan companies are taking a bigger risk by helping you consolidate your debts using a debt settlement loan, because they have nothing to guarantee that the loan will be repaid.

Debt settlement loans are typically fixed percentage interest rate loans, and are typically offered over a fixed term. Similar to a Chapter 13 bankruptcy, most debt settlement loans are offered over a 3-5 year fixed time period, and payments can be about half to two-thirds of what you would have paid the credit card companies over that same period of time had you not consolidated. Debt settlement loans are usually fixed at a rate higher than mortgage percentage rates, but lower than the variable rates found on credit card purchases.

Getting Help

If you are considering taking a debt settlement loan or otherwise consolidating or settling your debt, you should speak with a debt settlement attorney. You attorney can explain your options and help you negotiate with creditors to get the best deal possible.

Need Debt Help?