Save Your House - Settle Your Debt

The trouble started a few years ago when mortgage interest rates dropped to staggering lows and low-income buyers could purchase a home with the help of a subprime loan. Today, those rates have skyrocketed up to 12-13 percent, leaving those buyers, and often, first-time home owners, few options. As a result, foreclosure numbers continue to climb.

If you do the math on a $130,000 house, a $900 per month payment suddenly increases to $1,300 per month, because of the adjustment made on their mortgage. Most people are living paycheck to paycheck and are trying to pay their higher heating bills or higher gasoline bills, and they simply cannot pay the extra $400 each month.

And because the housing market is in a downturn and the high loan to values allowed on these loans, selling the house isn't an option either since they aren't going to get what the house is worth and closing costs alone can be in the thousands of dollars.

Hardest hit are borrowers in states like Texas and Michigan, which led the country in the number of new foreclosures in 2006. National and state lawmakers are currently drafting bills in an attempt to stop the bleeding, but Sandra Braustein, director of the Federal Reserve's division of consumer and community affairs said problems with subprime mortgages could last for another two years.

In the first two months of the year, there were four times more default notices issued in the country than in the first two months of last year, while foreclosures tripled over the same period. A default notice, often sent by lenders after three consecutive months of nonpayment, is the first step toward foreclosure.

This disturbing trend has highlighted the importance of debt-settlement programs in the United States. With the help of one of these programs, people can often pay about one-half of the minimums on their credit cards, freeing up additional money to put toward the mortgage and keeping them out of bankruptcy.

If you address your credit problems, and make some sacrifices, there's a good possibility that you could save your house. Be forewarned though that your credit worthiness will suffer some damage. The effects would be minimal compared to the damage that would be caused by a foreclosure however.

While you are participating in a debt settlement program, you inform the credit card companies of your financial hardship and that you are unable to pay as agreed. After three months, the bank will issue a charge off on the account and it will be sold to a collection agency. A good debt settlement company will assist their clients in handling the collectors and minimize the phone calls and letters.

You are however still making a payment, usually around fifty or sixty percent of the original payments, into an account that when enough funds are accumulated, a settlement offer will be made to the creditor. This process is repeated until all of the unsecured debt is cleared. These are programs designed for consumers that are legitimately suffering a financial hardship. Damage control can be accomplished after the debts are cleared and reported as "paid as agreed."

Upon successful completion of a debt settlement program, there are strategies that you can utilize to rebuild you credit. A point to ponder is that your debt did not accumulate overnight and it surely will not rebuild itelf overnight.

It is a process and it does take time.