Which Kinds Of Debt Are Eligible For A Settlement Program?

what kinds of debt eligible settlement program repaying debts options

The hardest part about budgeting usually isn’t actually carving out time to actually do it — it’s balancing the many expenses necessary for most people to stay afloat in today’s busy and expensive world. There’s some wiggle room when it comes to how much you spend on housing, transportation, food, utilities, insurance, clothing, etc. but it’s fair to assume you’ll have to spend a reasonable portion of your income on these relatively non-negotiable costs. 

With the cost of living rising faster than wages, many Americans are seeing an increasingly larger percentage of their paychecks go toward servicing these fixed living expenses. This means there’s less for variable expenses — like financial emergencies and fun money. 

Thus, more and more consumers find themselves footing these bills with credit cards. 

The takeaway? It’s common for borrowers to find themselves juggling multiple types of outstanding debt at once – and perhaps even feeling overwhelmed by this effort. When researching potential avenues to address debt, many may wonder whether the types of debt they’re carrying are eligible for a settlement program. 

Let’s take a closer look at settling debt. 

What Is Debt Settlement? 

First, let’s look at the basic mechanics of debt settlement. 

Creditors may be willing to negotiate and even consider a debt paid in full for a smaller percentage of the original price tag. Why? Because when people start to fall behind on payments, creditors fear they’ll receive nothing. Getting a partial payment tends to be more desirable than someone defaulting completely. 

Consumers may try negotiating with creditors on their own, or they may enroll in a debt settlement program. There are pros and cons to both approaches, of course. As these Freedom Debt Relief reviews note, a settlement firm will handle the actual negotiations on your behalf — which some people find helpful. The flip side is that you will have to pay a fee upon each successful resolution. 

Settlement is generally an option for people with a significant amount of debt — at least $7,500 — and who want to avoid bankruptcy. 

What Types Of Debt Are Eligible For Settlement? 

Certain types of debt are eligible for settlement, such as: 

- Credit cards 
- Retail charge cards 
- Medical bills 
- Personal loans 
- Private student loans (some) 

What do all these types of eligible debt have in common? They are all unsecured by an asset. Secured debts, like mortgages and auto loans, are generally not eligible for settlement. 

Put it this way: If you start to miss payments on your credit card, there’s no collateral for creditors to take. The only thing they can do is keep contacting you and report your missed payments to credit reporting bureaus, which lowers your score. If you miss payments on secured debts, lenders can simply seize those assets back — like foreclosing a home, shutting off utilities or repossessing a vehicle. 

This is also the reason borrowers who do decide to pursue settlement usually do so for higher-interest loans, which are very difficult to put a dent in as interest keeps compounding aggressively in the background. The reason unsecured debts tend to carry higher interest rates is precisely because there’s no asset backing them; they’re riskier for lenders because there’s no collateral incentivizing borrowers to pay them back. 

It's common to see credit cards carrying annual percentage rates between 15 and 25 percent, whereas mortgages and auto loans tend to fall below 5 percent on average. 

The easiest way to think about debts likely eligible for settlement are those that are unsecured: credit cards, medical expenses, certain private student loans and some personal loans.

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