6 options for debt repayment
The first step to paying off your debt is making tough decisions. The first is to choose which debt repayment option. There are pros as well as cons to each option. Which one is best for you depends upon your debt, your income and monthly expenses. Credit rating and how much debt it is. Consider these six debt repayment options.
Consolidation of Debt
Consolidating your debts is combining them into one monthly payment. You may be eligible for a consolidation loan to repay your unsecured debt. To qualify for this loan, you must have a good credit rating. Other programs function more like consumer credit counselling, where you combine your monthly payment with your existing loans. In case you have Payday loans try to get payday loan consolidation help.
Pay on your Own
It is possible to pay on your own by assessing your debt and creating a plan for paying it off. Your creditors and lenders may be contacted to discuss a payment schedule, or to request a lower rate of interest. This will make it more difficult to pay your creditors monthly. You decide how and when your debt is paid off. Your debt repayment plan should include both your secured debt and unsecured debt.
Counseling for Consumer Credit
Credit counseling agencies are usually able to work within your financial budget to help you find a reasonable monthly payment for all of your unsecured debt. The credit counseling agency will place you on a Debt Management Plan (DMP). This usually includes a lower minimum repayment for each of your creditors as well as a lower interest. Credit counseling with a DMP usually takes about three to five years, depending on how much debt you have.1
It is not allowed to use your credit card while you are in DMP. It will update your credit report to show that credit counseling is being completed, but it won’t affect your credit score.
Settlement of Debt
Working with a debt resolution company means that you pay a monthly service fee. They negotiate a lump sum payment which is lower than the entire amount you owe. After a settlement amount has been agreed upon, the debt settlement agency uses the money you send to pay the settlement.
To qualify for debt settlement, your payments must be current. Your creditors and debt collectors may not accept the settlement offer. If the settlement is unsuccessful, you might receive a full refund. Keep in mind that 78% is the average settlement percentage according to the American Fair Credit Council. When you consider that you might have to pay taxes on the forgiven debt, this might not equate to much savings.2
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an option to receive relief from some or all your unsecured debts. To prove you can’t pay your debt on the spot, you must pass a means test. Credit counseling will also be required. Depending on where you live, you might have to give away some of your assets in order pay off your debt. This could include your home and car, if you have equity. Most of your unsecure debt can be eliminated in bankruptcy. However, child support, tax debts, and student loans can’t be voided.3
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows for you to repay all of your debts within three to five to five years. All remaining debts after Chapter 13 bankruptcy will be discharged. Chapter 13 bankruptcy is possible if you don’t have enough money to file Chapter 7 and you have assets you want to keep. Chapter 13 bankruptcy filings require credit counseling. Chapter 13 bankruptcy requires you to pay child maintenance and alimony.