Many consumers may have found themselves deeply in debt over the last few years, as the economy sunk into a serious recession. A large number of Americans lost their jobs or had their hours cut back at work, forcing them to pay for more necessities on credit cards. Others may have found themselves with unforeseen debt due to hardships such as divorce or medical emergencies.
Whatever the reason, many people are looking for sensible ways of reducing and eventually eliminating debt. Fortunately for those struggling with unmanageable debt, there are a number of options available, each having their own benefits and drawbacks.
Many consumers initially explore consolidating their debt, whereby a bank issues an individual a new loan that pays off all their current debts and carries a considerably lower monthly payment than one would typically have with credit card lenders. This method may not eliminate debt instantly, but it can certainly help to lower monthly payments and rates, which allows consumers to pay off their total balance more quickly. It can also simplify the payment process by reducing several monthly payments into one. However, consolidation loans can be very challenging to qualify for since they often require that the borrower has superior credit, thereby making this option of eliminating debt much more difficult to attain.
Consumers that find themselves so deep in debt that they are falling behind on their payments may not think there is any hope of eliminating debt unless they file for bankruptcy protection. However, filing for bankruptcy can be an emotionally tolling process and is often considered the option of last resort. There are two kinds of bankruptcy that are available for consumers to file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcy protection eliminates an individual’s debt completely, although it is difficult to qualify for and can require a consumer to divest some or all of their assets to pay off creditors. Chapter 13 bankruptcy requires an individual to pay back a percentage of their debts, typically over a 3 or 5 year repayment plan, and a trustee distributes those payments back to the individuals creditors. Both of these bankruptcy types can seriously impair an individual’s credit score and credit profile, and make it extremely challenging for an individual to secure any kind of favorable loan for years.
For those consumers that are struggling with debt but would like to avoid bankruptcy, there is a solution that offers a middle-ground to these alternatives and can be very effective. Debt settlement, also known as debt negotiation, is the process of negotiating with creditors to achieve a payoff amount that is a substantial reduction to the current balances that are owed. Creditors are very willing to negotiate on debt balances that are in arrears, because if a consumer were to file bankruptcy, they stand to get nothing. In order to succeed in such a program, consumers need to diligently save the funds that are required to make settlements, which typically run between 40 and 60 percent of the total current balances. Consumers can try to negotiate with their lenders on their own or they can hire the help of a professional company. There are pros and cons to both – but a good debt settlement company can achieve results for consumers that are more favorable than what they could otherwise arrange on their own.
When consumers look for the best way to eliminate their debt quickly, they should explore all of their options and make sure to do their due diligence on the companies offering the various solutions for eliminating debt. While no process is going to be easy, there are great companies offering successful solutions that are very worthwhile.