If you find yourself in debt, you know that you have to find a way to get out of your financial problem. Otherwise, you will only waste your limited resources on interest rates and other charges. Fortunately for you, there are many consumer debt relief options that you can use to help you get out of debt. Despite the availability, you have to make sure that you are selecting the right program. There is no one formula so take extra care in making your choice in terms of the program that you will use to achieve debt freedom.
Program options to get out of debt
There are proven ways to get out of debt and here are the popular ones that people usually seek out.
Debt Consolidation Loan. This program involves a master loan that you will use to pay off the multiple debts that you have. You can enjoy a single monthly payment because you have shifted your dues under one lender. There is no debt reduction here but you can benefit from a lower monthly payment because the credit is usually stretched over a longer payment term. If you have mostly credit card debt, you will also enjoy a lower interest rate because personal loans usually have lower rates.
Credit Counseling/Debt Management. The credit counseling part is where you will meet up with a credit counselor who will analyze your debts and will discuss your debt relief options. You will also be taught personal finance tips that will help you stay out of debt. When the credit counselor sees that you are qualified, you will be offered debt management. This is when the counselor will take a more active role in paying your dues. You will both create a debt management plan (DMP) that will show your lower monthly payment proposal. Like debt consolidation loan, it is stretched over a longer term. This plan will be shown to your creditors and when they agree to it, you will send a single monthly payment to the counselor – which is the total of your dues every month. The counselor will take care of distributing it to your creditors.
Debt Settlement. In debt settlement, the whole idea is debt reduction. You will convince your creditor that you are in a financial crisis by defaulting on your payments intentionally. While waiting for them to take notice, you will put aside money to grow as your settlement fund. When the time is right (around 6 months or so), you will negotiate with your creditors by asking them to let you pay only a portion of your debts. You will reason that your only other option is bankruptcy. If they agree, you will pay the agreed amount and the rest of your debts will be forgiven.
Bankruptcy. The last and least liked option is bankruptcy because of the credit report implications. It can lower your credit score by 200 points. But if you are in dire financial conditions, this is the best option for you. There are two ways for this to go – Chapter 7 (liquidation of assets) and Chapter 13 (repayment plan). The court will decide which you can file through a means test.
Questions to ask before you choose a debt solution
While all of these options are effective, it is very important that you choose the right one. There are a couple of questions that you need to ask to make sure that you are making the right choice.
How much can you afford as debt payment?
The first question is all about your debt payment. If you can afford to pay most of your minimum payments without compromising your monthly expenses, the best option for your is debt consolidation loan or credit counseling/debt management. If you are having trouble with a significant amount of your debt payments and you need a debt reduction, then you know that debt settlement is an option for you. Or if you can get your hands on a sizable amount of money, settling is a wise choice. But if you are struggling to pay even for your bare basic necessities, then bankruptcy will give you the fresh start that you need.
Do you need professional help?
Some people are brave enough to face their creditors without feeling intimidated. Others, are not as courageous or simply do not have the time to talk to their creditors. You need to see which is more applicable to you. Of course, choosing to go with a professional will not always be free. Credit counseling is free but debt management, debt settlement and bankruptcy require professional fees. You have the option to conduct your own negotiation in debt settlement though. Debt consolidation loan – this is not so complicated so you can do this on your own.
In case you decide to seek the help of a professional, you may want to ensure that you are dealing with a legitimate company. It helps to look for them through reputable organizations like the American Fair Credit Council. In the event that you find a company that seems promising, conduct a due diligence and see if there are any complaints filed against them through the Better Business Bureau (BBB).
What are you willing to sacrifice?
The last question that you should ask yourself is this: what can you sacrifice to achieve debt freedom? The benefits of every debt relief program is not without any sacrifice. For instance, programs like debt settlement and bankruptcy will give you debt reduction and a faster process but it will damage your credit score. On the other hand, debt consolidation loan, credit counseling and debt management will take care of your credit score but will take longer to achieve debt freedom. Not only that, you will have to pay for all of your balance – maybe even more because of the interest amount.
Consider all of these when you are trying to find a way to get out of debt. Making a wise choice on the debt solution will help you a faster relief from your credit obligations. Here is a video that you can watch to find out more tips about getting out of debt.