The 6 Top Debt Relief Options to Clear Your Debt
What are my debt relief options? When you reach a point where you know you are having trouble with your debts, how do you figure out which option is right for you, and how do you compare risk, time, out-of-pocket, and short term/long term credit impact?
Summary of Debt Relief Options for Individuals:
- Request an interest rate reduction from existing credit cards
- Plus: No credit impairment; its easy; and if your debt isn’t too far outside of your budget, this can be enough to get the balances under control
- Negative: No change to balance, not a huge difference in monthly payments
- Refinance debt with a new lender / aka “debt consolidation loan”
- Plus: No credit impairment, usually reducing the interest rate on the debt, and puts several debts into a single payment
- Negative: Often not available option if debt is already behind. No debt reduction
- Debt Settlement – creditor agrees to pay off a debt for a reduced amount
- Plus: close out the debt for a reduced amount. credit impact is better than non-payment
- Negative: Have to be cautious about terms of settlement. Should make sure you aren’t paying on an uncollectible debt. Not as good for credit as paid in full. Debt settlement can have tax consequences.
- Debt Consolidation Plan – make monthly payments to a debt facilitator who negotiates several debts for you.
- Plus: Generally results in paying off several debts that usually are already behind at a discount. Get the benefit of a professional negotiator and take the stress off your shoulders. Payments are designed to be in your budget.
- Negative: Similar to Debt Settlement.
- Chapter 7 Bankruptcy
- Plus: Get rid of your debt with no payment plan.
- Negative: Have to meet qualifications. May not qualify if your household income is too high. May have to give up “extra” assets as trade off for eliminating debt.
- Chapter 13 Bankruptcy
- Plus: Get rid of your debt with a payment plan designed to be in your budget. Can file even if over the income qualification for Chapter 7. Can keep the assets you may otherwise have to give up in chapter 7.
- Negative: 3-5 year commitment.
The Low Impact Debt Relief Options:
1. Request an interest rate reduction from existing credit cards
2. Debt Refinance / Debt Consolidation Loan
The Medium Impact Debt Relief Options:
3. Debt Settlement
4. Debt Consolidation / Debt Management Plan
The higher impact Debt Relief options
5. Chapter 7 Bankruptcy
6. Chapter 13 bankruptcy
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