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Personal Loans and Debt Settlement May Go Together Well

[Sep 3, 2009.]


Unsecured personal loans, especially credit card debt, have become a problem for many Americans. Stories of people drowning in debt are a dime a dozen these days.

Ironically, unsecured personal loans may provide a way out of debt problems. Using a personal loan for the purpose of debt settlement is one of the best possible uses for a personal loan.

However, smart planning and discipline are key to making this strategy work.

Option One: Hire a Debt Settlement Company

One option is to take out a personal loan and hire a debt consolidation or debt settlement company to deal with creditors and get deals done. This can be a good option, but one must realize up front that the borrower is the one with the money on the line, and must act accordingly.

This means being involved with the debt settlement company on an ongoing basis. Devising a plan ahead of time and adjusting that plan as events develop. For example, sitting down and assigning a desired partial settlement for every debt that's outstanding--in effect, budgeting for debt settlement.

Paying a debt settlement to "make it all go away," and then the borrower himself goes away and figures it'll all get take care of, is not a good way to use a personal loan for debt settlement.

Option Two: DIY Debt Settlement

What exactly does a debt settlement company do, anyways? A debt settlement company contacts a borrower's creditors and negotiates settlement on individual debts.

Individuals can do that too, using a personal loan as a negotiating tool. Again, it's a matter of budgeting out how much can be paid to each creditor, and then getting the agreement in writing, and then using the new personal loan to pay part of the old debt and get it off the books.

Easier said than done, of course, but persistent borrowers may be surprised how amenable to negotiation some unsecured personal lenders are becoming these days. Especially in the case of charged-off credit card debt, banks are drowing in those waters themselves.

Charged-off credit card debt can be bought at 5 cents on the dollar after 12 months of no payment. Realize, then, that a six month no pay credit card bill is basically a loss for the bank at this point.

Using an unsecured personal loan to make good on 50 percent of that bill may look pretty good right about now, especially if the account has already gone to a a third-party collection agency.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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