Choosing the Right Debt Solutions

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It’s no fun carting around all that credit card debt, in fact it’s the pits. You know you must deal with it – you’re just unsure how. That’s understandable, since a lot goes into choosing the right debt solution for your circumstances. Let’s run down your options so that you can see what may be available to you.

What is Debt Relief?

Debt relief is an umbrella term that includes multiple types of debt relief options, including debt settlement, credit counseling, debt resolution, bankruptcy, and mortgage refi. The overarching goal is to make you financially solvent. Here’s a thumbnail sketch of some popular ways to get out of debt.

Bankruptcy

Let’s get the strategy of last resort out of the way. The upside to bankruptcy is that you can achieve it relatively quickly and gain a fresh start. But that’s about it, as far as advantages.

Depending on whether you go with Chapter 7 or Chapter 13, such a filing will hang out on your credit reports for seven or 10 years, during which you’ll be hard-pressed to obtain credit. What’s more, you may have trouble even renting a car, gaining employment, or securing a new apartment. Oh, and you may end up losing assets. So, try to avoid bankruptcy if you can.

Debt Settlement

Of all the debt solutions, many people choose this one in lieu of bankruptcy. With this form of debt relief, you pay a company like Freedom Debt Relief to go to each of your creditors to see if they’d be interested in letting you pay less than what you owe in a one-time payment in full to satisfy your debt. You’ll likely be successful since your creditors understand that bankruptcy might be your next move, and if you file that, there’s every chance they’ll be left holding the bag.

Credit Counseling and Debt Management Plans (DMP)

There are times when a person just needs help with budgeting and money management. Through sessions with certified counselors, who may also offer you financial literacy workshops or other educational resources, you can figure out how to best pay off your debts and remain debt free.

If your woes are more serious, your credit counselor may suggest a debt management plan, in which you make monthly payments to the counseling agency, which disburses them to your creditors. You may even be able to get a better interest rate or have certain fees waived.

Mortgage Refinance

If you own your home, you may be able to leverage the equity for a mortgage refi or home equity loan, which you can use to pay off your credit card and other debts. Oh, and your tax bill might decrease. However, must be sure to make your payments, because that nice loan rate comes at a potential catastrophic cost: the loss of your house if you default on loan payments.

Pay Debts in Full Monthly

If you can’t manage to bring your credit card balances down to zero each month, you might be tempted to just pay the minimum amounts to hang on to your cards. The latter is not a good strategy, especially if you’re dealing with high rates that will only result in a growing problem. If you cannot pay off your cards every month, perhaps you need to look at another financial strategy.

As you can see, choosing the right debt solution comes down to your financial situation and what you hope to achieve, by when. Take a clear-eyed view of your circumstances and pick the best debt relief option for you.

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