Debt is a problem that can weigh you down for a very long time. It is a major source of stress, and if it goes unresolved the problem will only escalate, making it difficult to get loans, and possibly resulting in repossessions. There are several different debt management solutions that you can choose to embark on. There are three basic methods of dealing with debt: restructuring the loans, creating a payment plan, and the last resort: bankruptcy.
Methods of Restructuring Loans
There are two ways in which loans can be restructured. These options are best if you simply can’t meet the minimum requirements to pay off your loans. You can either use debt consolidation, or debt settlement. A debt consolidation program is a program where one finance company buys all of your current debts and sets up a new payment plan with you. Debt consolidation is a way of combining all of your debts into one monthly payment. Depending on the consolidation program, there may be changes to the total amount that you owe. In most cases, a debt consolidation program will reduce your monthly payments. In some cases, it might lower your interest rates as well. Be cautious, however. Since the monthly payments are lower, the term of the overall loan is longer. Even if the interest rates are lower, you will almost always end up paying more in total interest as a result of the extended term of the loan. This is little deterrent for people who are unable to pay their bills each month, of course.
Debt settlement is another debt management solution that works by restructuring your loans. In this case, you get in touch with a debt settlement company, and they will communicate with your creditors in order to negotiate a better deal for you. Not all credit can be settled, but most credit card debt can be. The settlement program typically takes between two and four years. Again, you will only pay one company rather than several, you will stay out of bankruptcy, avoid lawsuits, and pay fewer charges. On the down side, it will ultimately hurt your credit score, you may owe taxes on the canceled debt, and the information will go on your credit report.
Creating Payment Plans
If you haven’t yet reached the point where it is impossible to make your monthly payments, but the debt seems to keep on growing, it might be better to approach the situation by creating a payment plan rather than restructuring the loans. You can do this by getting in touch with a company or organization that can help you create a debt management plan, or you can set up a repayment plan on your own.
When you get in touch with an organization to assist you with a debt management plan, they will begin the process by taking a look at your financial situation. The company will consider the interest rates of each of your bills, the minimum payments required from each account, and the total amount that you owe. The company will then speak with your creditors and attempt to negotiate better interest rates and monthly payments. They will then set up a payment plan so that you know exactly how much should be spent on any given creditor at any given time. Again, all of your payments will go to the debt management company, and they will disperse the the payments to each of your creditors. The great news about debt management plans is that they will not affect your credit score. The information will be shown on your credit report, however.
If you don’t feel that you are yet in need of a professional debt management plan, you can try a self repayment plan. Start by determining your total income and expenses. Try to determine if it is possible to reduce frivolous costs, and whether or not you can earn extra income. Find out what your total owed balance is. Write down the balance, interest rate, monthly payments with due dates, and determine which of your debts take priority. The highest priority creditors will be those with the smallest amount owed or the highest interest rates. All of your extra income should go toward the highest priority account. Make sure that the money is going toward the principle, not the interest. If you can’t pay your bills, try getting in touch with the creditor, explaining your financial situation, and proposing a realistic payment plan. It is best to communicate with letters rather than over the phone.
Bankruptcy: A Last Resort
When nothing else works, filing for bankruptcy is the only remaining option. There are several different types. Chapter 7 is when property is compensated, with some of the property being protected, and the sale of the property is used to pay off the debt. Chapter 13 bankruptcy allows you to set up a court ordered payment plan. Chapter 11 bankruptcy is used by businesses to restructure when debt becomes unmanageable. Filing for bankruptcy protects you from any legal action being taken against you, but it will force you to lose property, and it will not always wipe out all of your debt.
