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Debt Settlements: Should I Consider Debt Settlement if I Lost My Job?

By DebtSettlements.com Staff

Losing your job brings with it a host of financial consequences. If you have a debt load, that may be your first consideration. How will you continue to make those minimum payments while keeping up with your other financial obligations, including putting food on the table? Debt settlement is an option if you have access to some cash, but before you go down that road, take some time to look at your situation.

Can You Make Minimum Payments?

With the money that you do have, including any reserves or unemployment benefits coming your way, can you make the minimum payments on your debts? If so, you may wish to keep doing that as you look for a job. As long as you do not fall behind on your payments, your creditors will not care that you are without work.

Take the time to look carefully at your budget. Separate your “wants” from your “needs.” Make sure that you can continue to pay your needs and your minimum payments. In this situation, it may even be financially feasible to put some of those needs on your credit cards, provided you are disciplined to stop doing so when you are employed again, and also are very careful only to spend money on needs. If you can make your minimum payments and pay for the things your family needs, consumer debt settlement is probably not necessary.

When You Can’t Keep Up

When you can’t keep up with your minimum payments while still taking care of the things your family needs, you have three basic options. One is to consolidate your debt into a loan that has a lower interest rate. However, when you are unemployed, this may not be possible, because your lender will want to see employment records.

The second option is to declare bankruptcy. This is not ideal, because bankruptcy has a huge impact on your credit rating. That said, if you cannot pay what you owe, it may be a viable option. Keep in mind that you may not be able to dismiss your debts under bankruptcy because of new bankruptcy legislation that makes it more difficult for average consumers to file Chapter 7 bankruptcy.

The final option is to settle your debts. The settlement of debt involves paying off your debt, usually in a lump sum, in return for having some of the debt load absorbed by the creditor. Because the creditor does lose money in a debt settlement scenario, most companies are not willing to offer this solution until you are a few months behind already. So if you are currently on top of your debt, this may not be an option. If, however, you are already behind, consider this choice.

Keep in mind that you may need access to a large chunk of money at one time for the credit card company to agree to this solution. Sometimes the creditor will agree to give you a few months to save this money. Since you are unemployed, you should avoid the temptation to drain all cash reserves in an attempt to buy down your debt. Try to negotiate a solution that will eliminate some of your debt while still leaving some money in the bank. If you choose this option, consider working with a debt settlement company or financial planner to help you with the negotiations process.
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