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Knowing How Debt Settlement Works can Help You during Financial Difficulties

    1. Ways on how to eliminate debts
    2. When is the right timing to settle debts

Several years ago debt settlement in United States was not as topical as it is today. The reason is quite simple, US borrowers enjoyed almost unlimited benefits of unsecured borrowing, which was widely and easily available nationwide. According to credit card debt statistics in United States, approximately 2-2.5 million annually of US population runs into difficulties of credit card repayments and asks for the recommendation and help of credit card advisors. 

There is an increasing trend in the number of troubled borrowers, which almost doubled from 1990 to 2000 and is strongly increasing scale starting from 2007. It is mainly caused by the deteriorated economic conditions with United States being one of the most affected countries. The borrowers usually seek an advice on whether they should settle for debt settlement, whether debt settlement is a good thing and on general matters on how to eliminate debt.

In a snapshot, should I settle for debt settlement if my current income/expense situation is fully presented by the Graph 1? The answer to this question is very likely to be positive since there is a very high probability that I would fail on my financial obligations such as credit card payments, bills and mortgage instalments.

 How Debt Settlement Works


Graph 1: An Example When Debt Settlement Can be a Good Thing


Is debt settlement a good thing in this case? Yes, it is. Debt settlement would help me to eliminate by outstanding unsecured debt such as credit card loans and personal loans as well as very likely to provide enough funding for my mortgage refinancing. This would mean that the new consolidated loan would be secured against my property, but would be large enough in amount to refinance existing mortgage and repay outstanding unsecured loans. The maturity of a new loan is likely to be longer that the existing mortgage, the interest loan lower and it also would allow me to fix interest rates if I want to.


The obvious question arises why the financial providers would be able to give me loan large enough to eliminate all my debt. The new financial provider would use the equity accumulated in the form of my house. For instance, if I have already repaid 20% of the mortgage in the past, it means that 20% of equity has freed up. The value of my house also could have increased, increasing the value of equity. The provider of debt consolidation would use this equity to provide me with larger loan for the repayment of my all outstanding unsecured debts.


However, I should be aware that this increases my total debt exposure and also puts my house as collateral at risk. Should I fail to repay any of the interest rates and principal repayments on my consolidated loan, I may lose my house. So I will need to think very carefully should I settle for debt settlement or not prior to signing any agreements.   If I know for sure that my financial standing would improve in the coming years and that I will definitely be able to stick to my financial commitments, then debt settlement is a good thing for me.

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