Talk to a debt counselor toll free:800-300-9550
Our Clients Rate Us Excellent
Based on 3234 reviewsTrustPilot Reviews
A second way to consolidate debts is through a debt management plan. This is where you pay off your unsecured debts (usually credit card debts) in full but at a reduced interest rate with late fees waived. You would then be making a single payment each month to a credit counseling agency, which would then distribute the money among your creditors.
On the downside, this will be a problem in personal finance because your credit card accounts will be closed so that you'll have to live without credit cards until you complete your debt management plan., On the upside a debt management plan by itself will not affect your credit though closing those accounts could hurt your score.
Here's a video that provides more specifics about a debt management plan including what to expect if you choose to work with a credit counseling agency.
Debt relief through debt settlement
Debt settlement is where you contact your creditors and offer lump sum payments for less than your balances to settle your debts.
While it's possible to settle your debts yourself most people turn to professional debt settlement companies.
If you choose this option, you'll stop paying your creditors and will make a monthly payment to the debt settlement company instead. When enough money has accumulated in your account to settle one of your debts the settlement company will contact you and ask that you allow it to use the money to settle the debt. This process will continue until it has settled all of your debts, which typically takes from 24 to 48 months.
Of course, debt settlement companies don't work free. They charge fees that generally range from 15% to 25% depending on the size of your debt.
Unlike a debt management plan, debt settlement will definitely have a bad effect on your credit. This is because none of your debts that are settled will be reported as "paid in full".
However, on the upside your debts will be consolidated and you'll be freed from the stress of dealing with your creditors.
The ultimate solution – bankruptcy
If you're in so much trouble with your personal finance and your debts that you can't see any way to make payments in a debt management plan or in debt settlement and there is no way you could get a debt consolidation loan, you could file for bankruptcy.
There are two forms of bankruptcy – a chapter 7 and a chapter 13. The most popular of the two is a chapter 7 liquidation bankruptcy. It will erase or discharge almost all of your unsecured debts including credit card debts, personal loans, payday loans and medical debts.
However, it will not you erase secured debts such as your mortgage or auto loans and certain types of unsecured debts including spousal support, past-due taxes, child support and student loan debts. Plus, it will decimate your credit scores and stay in your credit reports for as long as 10 years. This is a big thing because it could hurt your eligibility for certain jobs, increase the cost of new debt and your auto insurance and possibly even damage your chances of leasing a house or an apartment.
If you're swimming in debt you have – as you have read – several options for achieving debt relief. You'll need to consider the pros and cons of each and then choose the one that you believe will best fit your financial circumstances. However, the really important thing is to choose one and get started as this is the only way you can ultimately achieve debt relief.