Combine a Loan Modification and Debt Settlement to Lower Bills

As credit card companies continue to increase rates and violate their customers, debt settlement or debt management is becoming more popular. Debt settlement is the procedure of eliminating a portion of the debt and entering into a repayment plan that will get you out of debt in just a matter of months or years. Most credit card debt could take nearly a lifetime to pay off, so seeing relief in just a few months or years is a huge relief for most people.

©Images_of_Money - flickr

©Images_of_Money – flickr

But debt settlement is usually only for unsecured accounts. Other debts, such as {car loans or first mortgages are not included. This is because these types of loans have collateral to back them up. If you do not pay, the bank will simply take away the collateral with a repossession, or the home, with a foreclosure. One choice to eliminate these debts or to pay them back on a more affordable schedule is bankruptcy. The main problem with bankruptcy is the amount of time it remaindstays on your credit. In most cases, debt settlement combined with a mortgage modification would be considered more appropriate than bankruptcy.

A mortgage modification is comparable to debt settlement in that a portion of the mortgage debt may be eliminated and new repayment terms are structured to make the payment more affordable. This can be done by lengthening the term of the loan or decreasing the interest rate. A mortgage modification is considered one of the best alternatives to foreclosure if you want to remain in possession of your home. It will make your property affordable again and has very little effect on your credit. In fact, it should begin to build your credit, assuming you have not done anything else to lower your score.

To qualify for a mortgage modification, you will need to prove that you have experienced a hardship and that a modification would make your mortgage payments affordable for the remaining life of the loan. Many lenders will want you to be behind on payments before allowing a loan modification, but that is not required. Even if you are current, if you can show that the payment is not affordable, an effective negotiator should be able to get you qualified.

A mortgage modification should be requested for at the same time as debt settlement. Ideally you want to show all your creditors improving your payment terms. Asking all your creditors to improve a small amount, is easier than asking one of them to reduce their payment a large amount.

In any situation, your credit will be effected to some degree, but when you are no longer able to make your payments, or if you have already missed payments, then you wont be approved for new credit anyway. Most people only use their credit once every 4 years, so this will give you plenty of time to improve your credit and become debt free. This is much better than a bankruptcy that can stay on your credit for 10 years.

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