So you’re looking at getting out of debt once and for all. The question is how do I do it and what options do you have. In this article I’m going to give the five options available to you. A long with that I will give the good points about each option as well as the bad points.
By doing this you will be able to easily see which option might be the one for you. Also feel free to print this out and share it with others to help inform them of their options as well.
Bankruptcy
Bankruptcy is the process of declaring yourself unable to pay off your debts. This does not mean it will get rid of all of your debt but most of it. The typical bankruptcy for consumers is Chapter 13. This is where lawyers will negotiate with your creditors and collection agencies to pay back less than what are owed.
The Good Points Of Bankruptcy
- You pay less than what you owe. The typical amount you will pay back on any certain debt will be anywhere from 30 to 80 cents on the dollar.
- They work a payment plan out for you. This will allow you to creditors back over period of time.
The Bad Points Of Bankruptcy
- Hurts your credit for the next 7 years from the point of discharge. You will not be able to get a loan of any kind.
- Costly. Bankruptcy can cost a lot of money. If you’re already in a lot of debt it may be tough for you to come up with the money to even go through this process.
- Bankruptcy is also very time consuming. Don’t expect the process to go very fast. In most cases it will take several years to pay back all of your debts.
Debt Negotiation
Debt negotiation is kind of like the little brother to bankruptcy. However, instead of having lawyers negotiate with your creditors you will have debt negotiation specialist. They also only deal with unsecured debt like credit cards, and unpaid bills like medical bills.
Good Points On Debt Negotiation
- Like bankruptcy you won’t have to pay all of what you owe and in some cases will get the interest and penalties waved.
- You only have to make one simple payment to the debt negotiation company. Once accepted into the program they will take care of things from that point.
- Finally, this will improve your credit over time much faster than going through bankruptcy.
Bad Points On Debt Negotiation
- May hurt your credit score depending on how your creditors report you. If they report you as “pay for delete,” or as “paid as agreed,” this will count as a negative on your credit report.
- Debt negotiation companies will usually deduct their fees from your monthly payment first before they pay all of your creditors back causing some of debts to fall into the hands of collection agencies.
- These companies also usually charge big fees and don’t usually disclose them very well. A lot of them will charge anywhere from 15% to 20% of the total amount of debt accepted into the program.
- Finally, if your looking to settle tax debt, debt negotiation companies will be of no use to you since most companies won’t deal with it.
Debt Consolidation
Debt consolidation is the process of combining debt into one bigger debt. For example let’s say you have some credit cards chalk full of debt and high interest rates and you decided to refinance your home and combine the debt of your credit cards to your mortgage to get a lower rate and clear your cards.
Good Points On Debt Consolidation
- Helps cut high interest debt into lower interest debt. This can go a long way to paying a lot less interest.
- Cuts down your monthly payments. Instead of having several different payments you may be able to group them down to one single payment.
- Can give you a bigger tax break. If you combine debts with your home mortgage you will get a bigger tax break since the interest you pay on a mortgage is tax deductible.
Bad Points On Debt Consolidation
- Can become a bad debt cycle by constantly refinance and combining your debt to the point you won’t have enough equity in your home. In the worst case scenario you may have to file bankruptcy if you neglect it enough.
- Consolidating debts does not get rid of your debt it only combines it to one bigger debt.
- Consolidation can be very expensive. The average refinancing cost of your home mortgage can range from $3000 to $3500 in closing cost every time.
Consumer Credit Counseling
Consumer credit counseling is the process of hiring someone to help you get out of debt and coach you back to financial health. They will usually work with you on a one on one basis and help you establish a budget and a plan to get out of debt.
Good Points On Consumer Credit Counseling
- May be able to cut interest rates on some of your credit cards. A lot of times credit counselors will be able to get your interest cut down long enough for you to get ahead.
- A lot of times credit counselors will be able to also get you on the right path and stop collection agencies from calling you all the time.
Bad Points On Consumer Credit Counseling
- Going through a credit counselor can however put a black mark on your credit history. In fact some creditors will treat this like a bankruptcy.
- These companies will usually require you to pay the full amount back to the creditors.
- Consumer credit counseling will take around five to ten years to complete.
Do It Yourself Debt Settlement
In the final debt relief option you have the do it yourself method. This is where you basically take matters into your own hands and do everything from setting up your own budget, build a debt plan, and negotiate with your creditors. Out of all of the options this is the cheapest option and where I suggest most people start first.
Good Points On Do It Yourself Debt Settlement
- The do it yourself option is far cheaper than all the other options, and can go a long way to paying back your creditors faster.
- You also have the most control with this option because you will be able to decide which debts you would like to pay off first.
- Finally, a lot of the tools you need to help you get out of debt can be found on the net at no cost.
Bad Points On Do It Yourself Debt Settlement
- With no coach or counselor you won’t have anybody to hold you accountable to your goals.
- If you have a mountain of debt it make be hard for you to even get started sorting out everything.
- Finally, if not done properly you could experience a constant cycle of going in and out of debt if you can’t stay disciplined enough to stop spending.
Which Debt Relief Options Are Right For You
With these option comes good and bad points. By now things might becoming a little bit clearer to you to which method is going to work best for you.
If not feel free to leave a comment and let me know what I can do help you through the process of deciding. No option is perfect here but the most important thing is that you pick one and take action because doing nothing at all isn’t an option.
Get started now before it’s too late.
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