Legal debt solutions to help you lower monthly payments
If you're knee deep in debt and collection agencies are literally turning your life into hell, then you must be trying to get out of the awful situation. However, you need not lose your sleep, as there are several debt solutions available to help you get out of debt. Since each solution is unique, so it's advisable to compare each debt solution separately. The 5 most popular debt solutions have been discussed below so that you can identify the differences, pros & cons of each solution, and choose wisely the most advantageous one according to your financial condition.
The 4 most popular debt solutions you can take advantage of are listed below:
- Debt Consolidation: A single monthly payment plan
- Debt Management: An easy and affordable payment plan
- Debt Settlement: A lump sum payment plan
- Bankruptcy: The last resort to your debt problems
Debt Consolidation: A single monthly payment plan
In debt consolidation, your multiple high interest unsecured debts are merged into a single and affordable monthly payment. The primary object of a debt consolidation program is to reduce interest rates and combine all debts into one easy monthly payment, so that the debtor can manage and pay them easily. Below are a few pros and cons of this program.
- Single monthly payment: Once you get enrolled into a debt consolidation program, your multiple payments are consolidated into one manageable and affordable monthly payment.
- Lower interest rates: If you seek the services of a debt consolidation company, they will negotiate with your creditors to lower the interest rates. You can also do it yourself through balance transfer method.
- Reduced monthly payments: If the interest rates get lowered, your debt amount also gets lowered indirectly. This means your monthly payments are also reduced. This helps you get out of your debt fast.
- Add up more due to spending habits: If you don't change your spending habits, you can incur more debts even during the repayment period.
- End up paying more: Some debt consolidation programs stretch over a long period. If you go on making only the minimum monthly payments, you will end up paying more in the long run.
Debt Management: An easy and affordable payment plan
In debt management, you involve a professional debt management company to resolve your debt problems. In a debt management program, a debt counselor prepares a budget for you after assessing your income, expenses and debt amounts. He also chalks out a plan so that you can pay off your debts quickly. Often, a debt counselor negotiates with your creditors to lower the interest rates. Have a look at the pros & cons of this program below:
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- You can get your finances back on track without further borrowing.
- You get to know interesting budgeting tips from the counselors.
- You get respite from the multiple high interest bills.
- You just need to make a single low monthly payment.
- Your creditors might not accept the negotiated payments.
- The period to repay your debts might increase - means paying more in the end.
Debt Settlement: A lump sum payment plan
Debt settlement is one of the best debt solutions available to you. It's certainly a feasible option for people having overwhelming debt burdens. Debt settlement helps people avoid frequent collection calls and filing bankruptcy. In a debt settlement program, a professional debt arbitrator deals with the creditors on the debtor's behalf, and helps him get out of debt legally. In this debt solution, the creditor agrees to accept a far lower payment than the actual debt amount, and considers it as a full payment. Have a look at some of the advantages and disadvantages of this debt solution.
- Reduced debt amount: A significant portion of the debt gets wiped out during the debt settlement negotiation, which in turn helps the debtor to pay back the creditors.
- Late fees and penalties are eliminated: A debt arbitrator tries his best to make the creditors forgive all your late fees and penalties.
- Respite from repeated collection calls: Once you get enrolled into the program, the settlement company handles all the calls on your behalf. However, creditors can call you in particular situations.
- Avoid bankruptcy: If you repay your debts through a debt settlement program, then you can avoid filing bankruptcy, which is a complex procedure.
- Tax consequences: The IRS considers all forgiven debts as taxable and the debtor is required to pay taxes on them.
- Credit score will take a hit: As you are not paying the full amount in a debt settlement, your creditors report the accounts as "Paid as Settled" or “Paid as Agreed” to the credit bureaus. This makes a negative effect upon your credit report and stay there for 7 years.
Bankruptcy: The last resort to your debt problems
The primary goal of bankruptcy filing is to give the debtor absolute respite from his debt burdens, and help him attain a fresh financial start. If you feel that only bankruptcy can help you solve your debt issues, then you can file either Chapter 7 or Chapter 13.
Chapter 7: In a Chapter 7 or liquidation bankruptcy, the court appointed trustee helps you discharge few or all of your debts. At the same time, he can also liquidate some of your properties to pay back your creditors.
Advantages & Disadvantages:
The complete procedure takes about 4-6 months, and costs around $300 for filing and administrative fees. However, to become eligible for bankruptcy, you must get a credit counseling certificate from a credit counseling agency approved by the United States Trustees. Get more details from here: www.usdoj.gov/ust.
Chapter 13: In Chapter 13 bankruptcy filing, you can keep your property but have to pay back your debts within 3-5 years. Chapter 13 bankruptcy is also called reorganization bankruptcy as here you end up paying most of your debts.
Advantages & Disadvantages:
In Chapter 13 bankruptcy filing, you keep all your properties and get protection against foreclosure. However, legal fees of Chapter 13 bankruptcy filing are comparatively higher as it’s more complex.
These programs are usually offered by professional debt solutions companies, who have sound experience and expertise in handling creditors and collection agencies. However, choosing the right debt solution company is extremely important and the only way to succeed.