Getting out of Debt Choices

Debt Settlement/Negotiation –Debt negotiation puts you in control and lets you pay less than what you currently owe, in affordable monthly payments. Professional debt negotiators understand that creditors realize they may never collect on delinquent accounts. So creditors generally welcome the opportunity to negotiate settlements. Experienced professional debt negotiators, however, can get a more attractive settlement for you – so you can afford to get out of debt.

Minimum Payments __ one choice is to pay the minimum payments to your creditors for the next 20 to 30 years. Obviously this is or will be a problem for you if you are or are likely to fall behind in your payments. Making the minimum payments does not eliminate debt. The debt continues and depending upon the interest rate could increase over time. Bear in mind that the interest rate could be as high as 39 percent. Based upon the applicable interest rate your debt could even grow. At best, making minimum payments is like treading water and you are doing little to eliminate your debt.

Debt Consolidation – Many people choose debt consolidation loans, such as home equity loans, to handle their credit card debt. Instead of paying high interest rates on one or more credit cards, they can take advantage of a significantly lower rate and one convenient monthly payment. While this option certainly beats paying the minimum payment on your credit cards, it does have a few negative aspects. A debt consolidation loan may be spread out over 15 or even 30 years – a long time to pay for purchases you’ve made on your credit cards. In addition, when you take out a home equity loan, you agree to use your home as collateral. So if you don’t make those monthly payments, you risk losing your home! Perhaps the most common risk consumer’s face with debt consolidation loans is the temptation of having balance-free credit cards. In some cases consumers quickly repeat their mistakes by running those credit card balances right back up.

Credit Counseling – Some consumers turn to “non-profit” credit counseling programs to help them get out of debt. The credit-counseling agency will design a reorganization plan to pay your debts and then close all of your accounts, collecting a payment from you each month. What consumers don’t realize is that the creditors then pay the agency a “fair share” contribution. While the agencies maintain their status as “non-profit” because they don’t report a profit each year, they actually make a great deal of money – and distribute it to employees and high-paid executives. In addition, creditors may report your association with credit counselors to the credit bureaus. For the next seven years, lenders will see that you’ve been in a “hardship program” and many lenders will not consider you worthy of a loan.

Bankruptcy – Some consumers turn to bankruptcy when they feel there’s no other option. Yet while bankruptcy may seem like a magic solution, halting legal actions and discharging your debts, it can have lasting long-term effects. Bankruptcies become part of the public record, so anyone can find out about your bankruptcy, and a bankruptcy will stay on your master credit report for life. Even if you change your financial situation in the future, a bankruptcy may haunt you, making you ineligible for loans, permanently disqualifying you for some high-level or sensitive positions, and preventing you from becoming bonded. Plus, you must give up control of your assets to the court, and you risk losing your home or vehicle if you can’t keep up with the payments.

A. Chapter 7 is called straight or liquidation Bankruptcy. The court appoints a Trustee who may liquidate or sell some things that you own to pay your creditors. Most of your debt will be canceled, but you may choose to pay some creditors, usually to keep a car or home in which the creditor has a lien. If you have any assets that you want to retain, Chapter 7 can have complications.

B. Chapter 13 works much like credit counseling and debt management plans which I will explain next. In Chapter 13, most of your debts are reorganized into a single monthly payment. The payment will continue for 36 to 60 months. You may not have to repay all of your debt. The minimum payment may be affected by property you want to keep. When you complete the payments, debt not paid is discharged