Should You Use Your Property for Debt Relief?

Consumer debt is at an all-time high in the US reaching $3.855 trillion representing a 3.4% increase. Credit card payments, rents, personal and student loans are just some of the expenses that form part of this figure. If you are struggling with your debts, there are ways to go around them. From creating household budgets to eliminating frivolous expenses, these cost-cutting methods can help manage debts. However, if the interest rates are very high and it is difficult to keep up with large payments, you may need to go for drastic actions to pay debts. Debt relief or management is something that you might need to consider. Using a property to settle debts might also be an option.

What You Should Know About Debt Settlement

In situations where you cannot repay your debt at all, you might have to go to a reputable debt relief company if you have exhausted your options such as going to a (non-profit) consumer credit counseling service. The agency will typically negotiate on your behalf with your creditors to pay a smaller amount than what you originally owed. This involves paying a one-time lump sum to your creditor through the debt relief company. The advantage of debt settlement is that the creditor is willing to accept a lower amount of the original loan you took. In addition, the lender cannot sue you for the debt nor can collectors bother you with payments. Going down this road involves some risks for it might take a long time before all your debts are settled. In the meantime, you might even discover that you owe back taxes on any loan or debt that you have. Plus, it should not be forgotten that you need to pay back a debt relief agency for their services which is a percentage of settled or eliminated debt. Your credit score will also take a hit so you need to consider this solution very carefully.

Personal Property in Debt Relief

For homeowners who are 62 years and above, home equity financing or a reverse mortgage may be used to supplement income and help pay debts. If you have property and used a mortgage to secure financing for it, this is a separate type of loan. You cannot use your property to pay off unsecured debt. Lenders cannot take away your property if you cannot pay your unsecured debts. However, mortgage and financial companies can sequester your home if you fail your obligations. If unable to pay your mortgage, you can opt for refinancing, loan modification or selling the house. If the market value of your property is bigger than your mortgage, you can opt for this solution and maybe have something left over to pay the unsecured debt.  However, you won’t have a roof over your head so you need think of the consequences as well of selling including a short sale.

There is no clear-cut answer as to what is the best option to repay debts. Your property can, perhaps, help pay for unsecured debts in cases where its value exceeds the loan. In extreme situations, declaration of bankruptcy may be the last resort. Talk to a financial adviser who can help you find an acceptable solution to your debts without compromising your property.

Chrissy Helders

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