Are you struggling to keep up with your debt? Feeling like you’re stuck in a rut? There are some possible options for debt relief.
If you’re finding that your debt is increasing despite your best efforts, you may be facing overwhelming debt. This can be a difficult and frustrating situation, but there are steps you can take to get back on track.
When it comes to your finances, don’t be a burden to yourself. Take a look at your possible options for debt relief and find the best route for you. This way, you can get back on track quickly and easily.
It is possible to achieve debt relief by filing for bankruptcy; receiving a change in your interest rate or payment schedule to lower your payments, or persuading creditors to accept less than the full amount owed.
The Appropriate Time To Seek Debt Relief
Debt-relief programs can provide much-needed relief for those struggling to make ends meet. However, it is important to understand the potential consequences of these programs before signing up for one:
- It is unlikely that you will be able to repay your unsecured debt within five years, even if you take extreme measures to cut expenditures.
- The total of your unpaid unsecured debt equals half or more of your gross income.
A do-it-yourself debt repayment plan could include consolidating your debts, making appeals to creditors, and/or budgeting more strictly. If you’re able to repay your debts within five years, this may be a viable option for you. Here are some possible options for debt relief.
Possible Options For Debt Relief
Debt relief programs are often used as a last resort by people who are struggling to make ends meet. However, these programs can be fraught with dangers, including scammers who are looking to take advantage of desperate people. Additionally, many people who start debt relief programs fail to complete them and end up in an even worse financial position than when they started. But it may be the fresh start or the room to breathe you need to finally make lasting progress.
Before checking possible options for debt relief, be sure that you understand and can verify the following points:
- To qualify, you’ll need to meet some requirements.
- Fees that you have to pay
- It’s important to know which creditors are being paid, and how much. This is especially true if your debt is in collections.
- The tax consequences can be significant for individuals who do not plan ahead.
Filing For Bankruptcy
Filling for bankruptcy is one of the possible options for debt relief. If you’re not able to make the payments required under a debt settlement or management plan, then it’s not worth pursuing those options. We recommend talking with a bankruptcy attorney first to see if that’s a viable option for you. Many initial consultations are free, and if you don’t qualify for bankruptcy, you can explore other avenues.
There are different types of bankruptcy, but Chapter 7 liquidation is the most common. This type of bankruptcy can erase most credit card debt, unsecured personal loans, and medical debt. The process usually only takes three or four months if you qualify. Here’s what you should know:
- There is no simple fix for getting out of debt. Though some methods may provide temporary relief, ultimately you will need to face your financial obligations.
- If you are considering filing for bankruptcy, there are a few things you should know about how it will affect your credit. First and foremost, it will decimate your credit scores and stay on your credit report for up to 10 years. This can have a serious impact on your ability to get a job, rent an apartment, or buy car insurance. However, if you are struggling with bad credit, bankruptcy may actually be the best option for you in the long run. It can help you rebuild your credit much sooner than continuing to try to repay your debts. (Learn more about when bankruptcy is the best option.)
- If you have filed for bankruptcy, your co-signer will be solely responsible for the debt. This can have a serious impact on their finances, so it’s important to consider all your options before taking this step.
- If you’re struggling with debt, you might not be able to file for Chapter 7 bankruptcy for 8 years.
- Bankruptcy may not be the best option if you want to keep all your property. The rules for what can be exempt from bankruptcy vary by state, but typically certain types of property like your car or truck (up to a given value), part of the equity in your home, family heirlooms, and valuable collections are exempt. You usually have to give up a second car or truck, vacation homes, and any other property that is not exempt though.
- There’s no need to fret if you’re “judgment proof.” This means that creditors cannot collect from you because you have no income or property. Even if they sue you and get a judgment, they still won’t be able to get any money from you.
Not everyone who has a lot of debt qualifies for bankruptcy. If your income is above the median for your state and family size, or you have a home you want to save from foreclosure, you may need to file for Chapter 13 bankruptcy.
Chapter 13 is a court-approved repayment plan that can last for three to five years, depending on your income and debts. If you are able to make all the required payments under the plan, any remaining unsecured debt will be discharged. Chapter 13 bankruptcy will stay on your credit report for seven years from the filing date.
Using Debt Management Plans
Debt management plans can be a great way to get your finances back on track. By making one monthly payment to a credit counseling agency, you can pay off your debts in full, often at a reduced interest rate or with fees waived. Credit counselors and credit card companies have longstanding agreements in place to help debt management clients. So if you’re struggling with debt, a debt management plan may be the right solution for you.
If you enter into a debt management plan, your credit card accounts will be closed. This can be difficult to adjust to, but it is important to remember that many people do not complete their debt management plans.
Once you’ve completed a debt management plan, you can apply for credit again and your credit scores shouldn’t be affected. However, if you close any accounts as part of the plan, that could hurt your scores.
Debt Settlement As An Option
When looking at possible options for debt relief, debt settlement can be a risky proposition and is often not as good of an option as bankruptcy. We would not recommend debt settlement for most people – bankruptcy is almost always a better choice. Debt settlement should only be considered a last resort for those facing overwhelming debt who do not qualify for bankruptcy.
Companies typically require you to deposit funds into an account that they control, in lieu of making payments to your creditors. As the balance in your account grows, each creditor is approached with a lump-sum offer which may be less than what you owe but alleviates the debt completely. The fear of getting nothing at all may motivate the creditor to accept the offer and agree not to pursue you for the remainder of the debt.
You could end up getting calls from collection agencies if you don’t pay your bills, being charged penalty fees, and even legal action taken against you. Debt settlement won’t stop any of that from happening while you’re still in the process of negotiating. It usually takes at least four to six months before you start receiving settlement offers. Depending on how much debt you have, the whole process could take years.
If you continue making late payments, your credit score will suffer further damage.
Debt settlement is not something you should try to do on your own. There are too many bad actors in the debt settlement business. The Consumer Financial Protection Bureau, the National Consumer Law Center, and the Federal Trade Commission all caution consumers against trying to settle their debts themselves.
There are many companies that claim to offer debt consolidation services. However, many of these companies are not actually legitimate and can end up doing more harm than good.
Get Out Of Debt On Your Own
Among the possible options for debt relief, is taking care on your own. There is no reason why you cannot take some of the debt relief options listed above and create your own plan. With a little creativity, you can come up with a plan that works for you and helps you get out of debt.
Debt management is one of the possible options for debt relief. By contacting your creditors and explaining your situation, you can negotiate lower interest rates and waived fees. Most credit card companies have hardship programs that can help you get back on track.
There are a few things you can do to try and settle your debts without professional help. You can learn about debt settlement and how to negotiate with creditors on your own or try contacting them directly to work out an agreement.
If your debt is manageable, there are a number of traditional debt-payoff strategies you can use. For example, if your credit score is good, you may be able to transfer your balance to a credit card with a 0% interest rate. Or you may be able to consolidate your debt with a loan that has a lower interest rate.
If you’re looking for possible options for debt relief, those are available to you. As long as you make the payments on time, your credit score should rebound.
It is essential to have a plan that will stop you from racking up credit card debt again. However, it can be difficult to qualify for a new card or loan when you are already deeply in debt, as this often leads to missed payments or high balances – both of which damage your credit standing.
Not To Do List
Debt can be overwhelming, especially when it suddenly appears due to a health crisis, unemployment, or natural disaster. Or, if it accumulates over time from small expenses, creditors and collection agencies may begin to demand payment and you may feel unable to meet those demands. In either case, debt can be stressful and difficult to manage.
If you’re in over your head with debt, there are some things you shouldn’t do:
- You should never miss a payment on a secured debt, like a car loan, to pay an unsecured debt, such as a hospital bill or credit card. If you do, you could lose the collateral that secures the debt
- Don’t use your home equity to borrow money. You could lose your home if you can’t make the payments, and you might turn debt that could be discharged in bankruptcy into secured debt that can’t be wiped out.
- Your retirement savings are for your future, not for repaying debt. Withdrawing money from your retirement account to repay debt is financial suicide. You’re putting your future at risk by depleting your savings.
- Before taking out a loan from your workplace retirement account, carefully consider the consequences. If you lose your job, the loans can become inadvertent withdrawals and trigger a tax bill- which is something you definitely don’t need.
- Do not allow collectors to pressure you into making hasty decisions; this could result in actions that are not advantageous to you. Invest time into researching your options so that you can make the best decision for your situation.
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