Many consumers across the country are finding themselves drowning in an endless pile of bills these days and would like to be getting out of debt. While some are in the position to reduce the amount of debt they owe to creditors by placing themselves on a strict budget, others are finding that a loss of job or a decrease in pay is making it nearly impossible to make ends meet. As a result, many are turning to professional help to get themselves out of debt: Consumer Credit Counseling, Bankruptcy, and Debt Settlement.
Consumer Credit Counseling
One sensible way for consumer to be getting out of debt is to enroll in a consumer credit counseling program. Consumer credit counseling focuses on financial advising and the consolidation of debt. A company is hired to manage your consumer debt for a period of time. This method can take up to 4-5 years before the consumer completes the program and is done paying off all of your debt. The program works on placing consumers into a repayment plan while negotiating the reduction of interest rates, late fees and penalties. Similar to other debt programs, this solution may not be suitable for everyone. Since, the program works on only the reduction of interest rates, late fees and penalties and does not reduce work on reducing principal balances, some may find that the monthly payment to complete the program is still too high. Debt being paid through the program is noted on the credit report as “not being paid as agreed”. Although, this notation is not supposed to impact your actual credit score, it may prevent you from getting approved for a new credit card or mortgage. Most lenders and creditors frown upon such marks on your score.
When it comes to getting out of debt, bankruptcy, commonly described as “liquidations” or “reorganizations” is a legal process that helps consumers eliminate debt entirely or repay debt under the discretion of the courts. Although bankruptcy can permanently eliminate consumer debts and provide a means for the consumer to have a fresh start, there are serious financial hurdles one will face after filing for bankruptcy. One of the main obstacles is the inability to obtain a mortgage loan or credit. Typically speaking, a bankruptcy will be disclosed on your credit report for up to 10 years. Most lenders and creditors will not offer loans or credit to someone with this mark on their credit report. And if they do, the interest rates will be incredibly high. Due to the long term damage that bankruptcy can cause to your credit, bankruptcy should generally only be considered if all other debt management options have been considered or if you are in an urgent financial situation.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy, also known as a liquidation bankruptcy, is filed when the debtor has mostly consumer debt. In Chapter 7 bankruptcy, a trustee is assigned and is responsible for collecting and selling non-exempt property. The proceeds from the sale are then allocated to creditors and the debtor is then discharged for all dischargeable debts. As all debts are typically discharged, this may be the fastest way for people who want to be getting out of debt.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy, also known as the reorganization bankruptcy focuses on placing consumers into a repayment plan where their debts are paid off over a span of three to five years. This type of bankruptcy is a better option for individuals who have non-exempt property that they do not want to lose. And is an option for those who have a steady income with enough coming in to spend on reasonable expenses with some left over to pay off their debt.
Debt settlement provides a way for consumers to pay down and reduce their debt while avoiding bankruptcy. Since its focus is to reduce principle balance, it is more aggressive at lowering debt than consumer credit counseling. Debtmerica, a debt settlement company, offers debt reduction programs that aggressively attack credit card debt and may enable debtors to get our of their financial rut in about 24-48 months. Although this option has a short-term negative impact on one’s credit, this option is best for consumers who want a more aggressive approach than credit counseling and want a second chance without having to go through the grueling process of filing for bankruptcy.
For those individuals looking to be getting out of debt, there are many alternatives. The key for those consumer is to thoroughly research all of the available alternatives and choose the plan that fits in with their overall financial goals.