http://www.flickr.com/photos/57412091@N00When dealing with your debt issues, it's in your best interest to research all your options thoroughly and decide which option is right for you. The table here summarizes some of the differences between your options.
Do Nothing
If your debts have become overwhelming, this is no longer an option. Making minimum monthly payments month in and month out will only produce the same exasperating result and essentially get you no closer to financial freedom from debt. Paying the minimum payment with interest over 20% will typically take you over 50 years to pay your debts off. Click here to go to a financial calculator at www.bankrate.com to assess your current situation. As you will see, it is time to choose a new path to get out of debt!
Bankruptcy
Bankruptcy may seem to be the quickest solution to removing your outstanding debt, and bankruptcy attorneys will tell you it will only remain on your credit report for 7-10 years. However, almost all credit applications today ask the question, "Have you EVER filed for bankruptcy?" Even if the bankruptcy has fallen off your credit report, to answer this question untruthfully in considered a federal offense. Bankruptcy is a permanent decision that will follow you for the rest of your like; therefore, it should only be considered as an absolute last resort to solving financial matters.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The filing fees run about $185 for Chapter 13 and $200 for Chapter 7. Attorney fees are additional and can vary.
Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off a default during a three-to-five year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.
Known as straight bankruptcy, Chapter 7 involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official - a trustee - or turned over to your creditors. You can receive a discharge through Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.
Credit Counseling
Prior to the introduction of the Consumer Credit Counseling companies, Americans had very few options to deal with debt reduction, other than filing bankruptcy. Consumer Credit Counseling organizations were originally set up by a major credit cards company in the early 1980s as a means of recovering money from thousands of people that were starting to fall behind on their payments. The main attraction of consumer credit counseling is creditors may reduce the interest rates and potentially reduce existing late and over-limit fees. However, this is never guaranteed.
Additionally, in a credit counseling or debt consolidation program, the debtor makes a single monthly payment to a credit counseling agency that is, in turn, responsible for disbursing these payments to the creditors. Many times, the new monthly payment consumers make to the credit counseling or debt consolidation agency is more than their regular monthly minimums made directly to the credit card companies. While a consumer counseling plan may be a good option for someone who is not struggling in making minimum monthly payments, this is in no way provides consumers with the monthly cash relief that is desperately needed. Because of this, nearly half of consumers who enroll in a consumer credit counseling or debt consolidation program end up falling out before they ever pay off their debt.
For many Americans, simply reducing the interest rate, on already high balances, does not have a significant impact on their overall credit card debt. Most consumers who are in need of debt assistance need immediate monthly cash flow relief, however, Consumer Credit Counseling or Debt Consolidation programs do not automatically provide consumers with this much needed monthly assistance. Consequently, the 4-6 year plan they were originally promised by these agencies turns out to be considerably longer.
As mentioned earlier, consumer credit counseling or debt consolidation programs basically work for the creditors - not you. Because of this, they may not have your best interest in mind.
Debt Consolidation
There is no true way to borrow your way out of debt, which is the premise behind debt consolidation programs. Debt consolidation in itself is the process of combining all or some of your unsecured debt into a single loan for the purpose of lowering your overall interest rate and therefore your total monthly expenses. The term debt consolidation is often confused with many popular Consumer Credit Counseling, Debt Consolidation or Debt Management companies. Credit card debt consolidation can also be achieved through personal loans or home equity loans.
Personal loans or home equity loans used for credit card debt consolidation can be a very dangerous pitfall for many Americans who do not understand the full economic impact of using such loans. These credit lines are usually back to their limits soon afterwards, thus directly compounding the continuing problem. While debt consolidation programs often offer consumers a lower overall interest rate and a larger tax break, the sad realization is that many consumers who take out consolidation loans often find themselves in a much worse financial situation than before; only now the consumer faces the very real possibility of losing one of their most valued possessions - their home.
Debt Settlement
Debt settlement through debt negotiation is quickly becoming the preferred method for many consumers with severe credit card problems and those considering and alternative to bankruptcy. Debt settlement offers you an intelligent solution to becoming free from credit card debt within a realistic time frame. People can begin to realize the only alternative to regaining control of personal finances is by negotiating the total balances to a lesser amount, rather then just reducing interest.
Creditors will usually settle for less than owed when the debtor is under serious financial strain because if the debtor chooses to file bankruptcy, then the creditor gets nothing. Creditors want to get as much money back as they can.
On average, unsecured debt settlement can be achieved in 36 months or less. Because your debt is settled for an amount less than you currently owe, settlement negotiations are now becoming the only practical debt solution for countless consumers to help rid themselves of bothersome unsecured credit balances.
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