If you’re reading this, you’re probably trying to figure out the best way to deal with a debt load that’s gotten out of hand. Whys and whens are irrelevant at this point. It’s all about what you can do to reset your financial position and get things back on track. If things have progressed beyond the possibility of getting a consolidation loan, your top three debt solutions will be credit counseling/debt management, debt settlement or bankruptcy.
All three have advantages and disadvantages; let’s take a brief look at each.
Credit Counseling/Debt Management
When you work with a credit counselor you’ll learn budgeting skills and credit management techniques. The counselor will review your entire financial situation to help you find your way out of debt.
Depending upon your situation, credit counselors typically prescribe a debt management program to help you satisfy your obligations and get a fresh start. A debt manager takes over the paying of your unsecured debts, using funds you’ll deposit each month. These include credit card bills, certain private student loans and medical payments. They will also negotiate with your creditors in an effort to get them to agree to lower interest rates or waive certain fees.
However, there has to be steady income for debt management to work, because the programs can take up to five years to complete. On the other hand, the effect on your credit rating isn’t nearly as pronounced as the other two debt relief solutions covered here.
If this looks good to you, take some time to ensure the counseling organization you’re considering is on the up-and-up. You’ll also want to double check with your creditors to make sure payment agreements really are in place. There have been cases of organizations taking clients’ money and failing to make the payments, leaving them in a much worse situation.
Debt relief companies like Freedom Debt Relief will evaluate your situation to determine the nature of your debt, your overall financial condition and whether settlement is indeed the right way for you to go.
If it is, you’ll work out a deposit schedule to build up a settlement fund the organization can use on your behalf. This will be held in a FDIC-insured escrow account, over which you have complete control.
When the fund accrues enough cash, the firm will ask your creditors to settle for less than the outstanding balance in exchange for a single payment of the agreed-upon amount. These reductions will enable you to pay off your lenders more quickly than with debt management.
However, it’s important to note certain types of debt are immune to this strategy. Mortgages, public student loans and car loans cannot be settled in this fashion. Additionally, the IRS will look upon the forgiven amount as part of your income, so there may be tax ramifications too.
You also have to vet settlement companies carefully. Like debt management, settlement has its share of nefarious operators. If a debt settlement company asks for money up front, promises to settle your debt for pennies on the dollar and/or guarantees settlements you should be suspicious.
Probably the most familiar of the three options listed here, filing for bankruptcy protection can get most of your debts completely discharged. This enables you to start over with a relatively clean slate—in terms of debt. However, the damage to your credit rating is substantial and will stick with you for 10 years.
The good news is one of these three top debt relief solutions is bound to work. Before you decide which one to apply, consult with professionals well versed in each option to see which will be most appropriate for your circumstances.