When should you apply for debt relief?
Analyze bankruptcy, debt management, or debt settlement if one of the following is true:
You can't pay off the unsecured debt within five years, even if you cut costs as much as possible.
The unpaid unsecured debt equals 50 percent or more of your gross income.
On the other hand, if you are at least theoretically able to pay off your unsecured debts within five years, consider a do-it-yourself approach. It may include debt consolidation, appeals to creditors, and budget tightening. Try to understand how to consolidate debt.
Remember, debt relief can make things worse
Scammers in the debt relief industry are out to take what little you have. Many people who participate in debt relief programs fail to complete them. You risk ending up with even more outstanding debts than when you started.
However, debt relief can give you a fresh start or the breather you need to make real progress finally.
Before signing any contract, make sure you comprehend what is debt relief and check these points:
What do you need to qualify?
What fees will you pay?
Which creditors are paid and how much; If your debt is collectible, make sure you understand who owns the debt so that payments go to the proper organization.
A rational approach to debt relief avoids many problems
Debt relief through bankruptcy
There is no point in entering a debt repayment or management plan if you cannot pay as agreed. We advise you to consult with a bankruptcy attorney before following any credit debt relief strategy. Initial consultations are often free; if you don't qualify, you can move on to other options. Here's what you need to know:
It does not void any taxes or child support obligations owed, and it is unlikely that student loan debt will be forgiven.
It will destroy your credit score and remain on your credit report for up to 10 years even if you rebuild your credit history. It's crucial because bad credit can affect your eligibility for specific jobs, your chances of renting an apartment, and how much you pay for car insurance.
If you have used a guarantor, your bankruptcy filing makes that guarantor solely responsible for the debt.
If debts continue to pile up, you cannot file for bankruptcy again for eight years.
It may not be the best option to give up the property you want to keep. The rules vary by state. Generally, certain types of property are exempt from bankruptcy, such as cars up to a specific value and some equity in your home. Still, you usually have to give up a second car or truck, family heirlooms, vacation homes, and collectibles.
It is any income or property that the creditor could draw attention to. Creditors can still sue you and get a judgment, but they won't be able to recover.
Before proceeding with bankruptcy proceedings, consider how to debt consolidation organize.
Relief with Debt Management Plans
A debt management plan lets to pay off your unsecured debts – usually credit cards – in total, but often at a cut interest rate or with no fees. You make one monthly payment to a financial organization that distributes it to your creditors. Credit counselors and credit card organizations have longstanding agreements to help clients manage their debt.
Your credit card accounts will be closed, and in most situations, you will have to live without credit capital until you finish the plan.
What not to do
Sometimes huge debt comes with devastating speed – unexpected health problems, unemployment, or a natural disaster. Or maybe it came in little by little, and now creditors and collection organizations are forcing you to pay, and you don't have the option.
If you're feeling overwhelmed with debt, analyze how does debt consolidation work. Here are also recommendations on what you definitely shouldn't do:
Don't pay the secured debt (such as car payments) late to pay the unsecured debt (such as medical bills or a credit card). You may lose the collateral securing this debt (your vehicle).
Do not borrow against the equity in your home. You expose your real estate to foreclosure risk, and you can turn an unsecured debt that could be wiped out in bankruptcy into a secured debt that cannot be repaid.
Don't withdraw money from your retirement savings to pay off unsecured debt. It's a shot in the foot.
Think twice about borrowing money from retirement accounts at work. If you lose your job, loans can become inadvertent withdrawals and cause a tax bill, which is the last thing you want.
Don't make decisions based on which debt collectors put the most pressure on you; this may lead to actions that are not in your best interest. Instead, take the time to explore your options and choose the best one for your situation. Consider, should you consolidate debt.