On the surface, you’re hanging in there. After all, you are making your monthly credit card payments. The problem is they’re minimum payments, and your debt is not only not decreasing it’s increasing due to interest. You need help. But what to do? Here is how to find your best debt relief options.
What is Debt Relief?
Debt relief could mean erasing your debt completely, getting your interest rate lowered, or having your payment schedule modified to reduce your payments. You can also see if credit card issuers will agree to accept less than what you owe to clear debt.
When Should You Pursue It?
You should think about using debt relief when you know you can’t pay off your debt in five years, even if spending is cut to the bone. You should also consider the strategy if the sum of your unsecured debt – credit cards, personal loans, medical bills, and the like – is half or more of your gross earnings.
However, if you do feel like you can get out from under your debt within five years, perhaps some combination of belt tightening, debt consolidation, and appeals to creditors would work.
If you know you’re not likely to stick with a debt management or debt settlement plan, then bankruptcy may be for you. First, speak with a bankruptcy attorney to see if you qualify. Initial consultations are usually free.
- Chapter 7 is the most common form of bankruptcy. If you’re way behind on bills and can’t handle payments or living expenses, such a filing could be a last resort to give you a fresh start. However, you may have to relinquish some assets, and your credit will be damaged.
- Chapter 13 is more about finance reorganization. It generally requires you to make a monthly payment to a trustee for 36-60 months. Afterward, the trustee distributes the funds to your creditors who have filed claims.
You’ll pay your debts in full using this approach, but often at a lowered rate or with fees waived. You make a monthly payment to a credit counseling agency, which allocates it to your creditors. You’ll have to close your credit card accounts while you’re in the program. You won’t be able to apply for new credit until you’re done. You also can be dropped from the plan if you miss a payment.
Here, a credit card debt relief agency will negotiate with your creditors to accept a partial payment to “settle” the debt. The main reason debt settlement to choose is to avoid bankruptcy — a debt solution that will follow you for a long time. After the company negotiates on your behalf and you’ve paid your settlement, you’re basically debt free in less time and at a lower cost than if you attempted to erase your debts on a conventional repayment schedule.
What You Shouldn’t Do
If you’re feeling overly burdened with debt, there are some things you shouldn’t do:
- Don’t be late with secured-debt payment in order to pay secured debt such as credit card or hospital bill. You don’t want to risk losing your collateral.
- Don’t take money from your retirement fund or workplace retirement account to pay off unsecured debt. The penalties aren’t worth it.
- Don’t borrow against your home’s equity. Rather than putting your home at risk of foreclosure, pursue other options.
Now you know how to find your best debt relief option. Look over your choices carefully and make the decision that’s best for you. The most important thing to do is – get started today.