If you are under debt, don’t worry; you are not alone. There are lots of people sailing in the same boat as you. There can be numerous reasons for accumulating debts such as sudden medical expenses, loss of a job, increase in mortgage, high tuition fee or buying a new vehicle. Fortunately, there is help available to get rid of huge amounts of debts; the most popular being bankruptcy. It is often the most feared and misunderstood option according to Dallas based bankruptcy law firm Recovery Law Group. Other options like debt consolidation, debt management, and debt settlement are equally viable.
Bankruptcy
People can end up having a huge amount of debt, even if they are earning well. There are different chapters of bankruptcy through which individuals can get rid of their debts. While Chapter 7 allows you to discharge all your debts in a relatively less time frame, it can be effective for people who have a monthly income less than the state mean for a household of a similar number of people. Chapter 13 on the other hand, allows you to repay some portion of your debt (depending on your disposable income) while getting rid of the remaining at the end of your repayment plan which takes 3 to 5 years. In both cases, your credit rating takes a dip, which means you will not be able to get a loan for some time. Moreover, bankruptcy records are public, i.e. your reputation is under the scanner, your potency to land up a job will be hampered.
The repercussions of bankruptcy can affect you for a long time, hence it is important to consider other options before filing for bankruptcy. Alternatives to bankruptcy include using credit counseling, debt consolidation, etc. Even filing for bankruptcy includes going for counseling with an accredited counselor. As per credit counselors, there are three alternatives to bankruptcy; debt management, debt settlement, and debt consolidation.
Debt management
If you have income enough to afford the monthly payment, you can opt for this arrangement. Since you are not taking another loan, it becomes easy to repay the debt with the credit counselor working out a plan with lenders. A lower interest rate results in reduced monthly payments thereby making it easier to repay the principal amount. Late fees can also be eliminated. However, if you miss on payments, the deal can be revoked, and the interest rate hiked back. This may take nearly 3 years to get rid of debt. This also affects your credit report but unlike bankruptcy, debt management notation is removed as soon as you finish the plan.
Debt settlement
This is a risky option specially designed for people who are not able to make minimum monthly payments. Debt settlement companies take control of credit card debts. You need to make payments to them, and they will make a settlement offer to the lender, wherein the lumpsum amount is paid to them to settle your debts. You can reduce your debt by nearly 50%, however, there is no guarantee for success. The process (if agreed upon by card companies) can take somewhere between 3 and 4 years. Including the late/non-payment penalty, fees for debt settlement services, etc. you can save 20% of the amount. The credit report shows this for the next seven years.
Debt consolidation
You can consolidate loan from a bank, online lender or credit union and on its approval can pay off your entire credit card debt. The interest rate is generally lower than normally present on credit cards, thereby reducing monthly payments. Your assets are used to secure the loan, thereby putting them at risk if you fail to make payments. This also opens a new credit line which can end up affecting your credit score.
Whatever your circumstances, it is important to make sure that you continue making payments to get rid of debt, preferably focusing on paying the highest interest rate debts first. In case you wish to know which option from those mentioned above will best suit you, consult with bankruptcy lawyers at 888-297-6023.