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19 Jan 11 Why Debt Settlement is Becoming Popular with Homeowners

Just a few years ago, homeowners could wipe out all of their variable interest credit card debt by signing documents for a home equity loan that promised to refinance all of their unsecured debt into a fixed rate home equity loan.  When the housing market crashed in 2006, so did the home equity solutions that enabled homeowners to make credit card problems disappear. Unfortunately with no equity, lenders were not interested in offering debt consolidation home loans.

With no equity, there was no collateral so the second mortgage and bad credit debt consolidation loan programs disappeared and debt relief solutions have shifted once again.  Many homeowners were lured to debt settlement which was once considered taboo by homeowners because consolidating debt was clean and simple with second mortgages.  Unlike a consolidation loan that pays off the outstanding balance, debt settlement is a negotiation process in which a legal team convinces you credit card lenders to accept less money.  Debt consolidation loans pay off 100% of the debt and debt settlement typically pays off 40-60% of the outstanding credit card debt. In most cases a debt consolidation loan will improve your credit and debt settlement will hinder your credit for a few years.

The problem today is that there are very few debt consolidation loan solutions available, because the housing market and mortgage industry have been so battered. The reality is that most homeowners do not qualify for home mortgage refinancingor an equity loan that enables them to consolidate their debt. Most homeowners do qualify for debt settlement, so it is becoming more popular.  Many homeowners consider debt settlement rather than filing a bankruptcy because the credit rebounds quicker with debt settlement than it would with a chapter 7 bankruptcy.  Every situation is unique though, so discuss your financial goals with a loan officer, attorney and finance advisor in which you trust.


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