Everyone’s debt circumstances are different and figuring out what methods work best for you starts with sorting out your debt. Whether your debt is secured or unsecured significantly effects the measures you can take to eliminate debt.

A loan which is secured by property is a secured debt. Simply put, if the bank can come and take something from you if you don’t pay (for example, your vehicle and homestead) so the debt will be secure.

Unsecured debt is the most common type of debt and is typically in the form of credit card debt.

Eliminating Unsecured Debt

The three most common ways to eliminate unsecured debt are
1.paying as agreed
2.going bankrupt
3.There are methods of resolution like debt settlement and negotiation.  These involve paying a percentage of the amount actually owed.  So you can see that bankruptcy is not a necessary solution. The Bush administration changed the Bankruptcy Law in the year 2004, due to which it is estimated that less than 10% of people filing bankruptcy are able to discharge any debt successfully.  Chapter 13 requires that the majority of people pay it back.

Credit Counseling and Debt Consolidation services typically focus on eliminating your debt by settling with your creditor for less than the balance due. These services are typically owned by large banks and credit companies and typically charge a fee. The upside is that you can do this without assistance.

Settle For a Lower Price than What is Currently Owed

Leverage is the secret to a triumphant settlement. If a bank thinks they can get more out of you, they will not settle. This means that you may have to go months without making any payments. You can obtain a good settlement, but it will look poorly on your credit report and negatively affect your credit score.

When you are not making the payments to the credit card company they would be all the time trying to get in touch with you to discuss it. This is ideally dealt with from the start by sending a letter asking that they contact you only in writing. Also, it is very important that you familiarize yourself with your rights under the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. Knowing what your rights are is the key when dealing with unscrupulous collection representatives.

You should attempt to make a settlement once you have sufficient leverage. You should realistically expect to settle the debt for between 35%-50% because it’s much more likely. Contact the bank or credit card company directly and they will likely transfer you to their collections department. Once in touch with the collections representative simply let them know you wish to resolve the debt. Typically, they will make you an offer to settle for 65%-80% of the balance before you ever make an offer to pay. You must let them know what you have; the initial offer could be 15%-25% of the balance is quite reasonable. They may tell you no or tell you that they have to speak with their manager but continue the negotiation as necessary to settle within the range that you desire.

Some credit companies are more apt to settle than others. For example, trying to settle for less than 60% with American Express is very hard to do. Check the internet for information regarding your specific credit card or bank company and see how others have progressed.

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