Ara Betty is a freelance financial writer and speaker about personal financing. She helps people realize their goals on becoming debt free with the use of debt consolidation. She hopes to expand her knowledge more about loans and debt to be able to write a book.
Are you deep into debt and searching for a way out? We are going to explore some options which may help you make the right decision. Needless to say, credit card settlement could be the best financial option for you – it is cheaper, easier and faster than any other alternative that you have.
How to know if this article is for you:
- Have trouble paying your bills
- Get scary and/ or annoying calls from your creditors
- Worried you might lose your home
- There is an actual possibility that your car could be taken away from you
- Find yourself unable to support your family needs
- Have most/all your accounts already turned to debt collectors
You are not alone in your financial troubles. Many people have money problems at some stage in their lives. The good thing is, you can overcome them. You just need to take action while it is still possible. Don’t let your financial situation get worse!
There are many reasons that could have led you to this point, from family problems, loss of a job to overspending. Whatever it is, your financial woes can be put to an end even though it may seem overwhelming at first.
The main factors that land you in your current financial state could be the types and amounts of debt you have, your level of motivation and ability to deal with the problem and your current and possible future situation. Take a look at some of the methods which could help you reduce or resolve your debt here.
What are the ways to get out of debt?
You might have thought there is only one way to get out of debt – to pay what you owe your creditors. However, sometimes debts could reach such unimaginable amounts that it seems impossible for you to pay them all off in this lifetime. What you need to know is that you have several financial options to solve the problem at hand.
Credit card settlement
Credit card settlement is an established method to deal with your debt. The good thing about it that you do not deal with your creditors – the credit card debts settlement company does that on your behalf. In addition, their job is to make your debt go away for less than it actually is. Meaning that they will negotiate with your creditors and reach an agreement for a smaller amount. At the end of the process, you can be debt-free which sounds like a dream but it is a real possibility as that is what happens to a lot of people. On our website, you can find detailed information on how the procedure goes step by steps and the risks involved and how you can easily overcome them. Credit card debt settlement is probably by far the best method to get rid of your debt.
Actually, every step you take to resolve your financial situation is a self-help. This means you do everything on your own and do not get any professional help. It will take a lot of organization, devotion and planning on your own. One of the most important things is to stay realistic and be honest with yourself whether you able to do it on your own. If you believe in yourself, here is how to get yourself out of debt without seeking professional help:
– Develop a budget
You should always start with having a very clear and realistic idea of how much you have and can earn against how much you spend. The best way to do that is to make a list of all the payments you have to make every month such as insurance, car payments, mortgages and others. The good thing about this is they are all fixed amounts and are easy to calculate. Then you have to also list expenses that are unavoidable, such as food, clothes or entertainment. Follow your spending habits to find your weak spots. Do not forget to include all your sources of income. The goal is to be able to make ends meet and pay all your debts.
– Try to negotiate with your creditors
When you start really having trouble with repayments, it is advisable that you contact your creditors straight away. They might be willing to consider your situation and offer a modified repayment plan. The sooner you do that, the better it is.
Once your accounts have been turned to a debt collector, it might be too late. Your creditors might be unwilling to negotiate with you. In those cases, it is better when you get a debt settlement company which has more experience than you and may have established relations with some of your creditors. They may also be able to settle your debt for less.
– Deal with your debt collectors
An important thing you should know is that federal law actually regulates when your creditors may contact you and they definitely cannot contact you during 9p.m. and 8a.m. In addition, they are obliged to respect your will if you have made a written request not to be contacted anymore. There are many other bans imposed on debt collectors as well – they cannot lie or use unfair practice when trying to collect their debt from you. Do not let yourself be bullied.
– Manage your loans
There are two kinds of debt – secured and unsecured. Although unsecured debt is harder to go away, it does not mean you should not worry about your secured debt. Secured debt is normally tied to something you owe such as your car or your house. It is called secured loan because if you stop making repayments, your creditors can repossess your property.
Most automobile finance agreements have a clause to do it by default. Meaning they do not even have to give you notice in advance. It is almost the same with your mortgage. The difference is that you are facing foreclosure. Contact your creditors and check what options they are willing to give you. Make sure you ask if there are additional fees to pay.
Credit card debt is unsecured debt. So are medical debt and signature loans. They are not tied to an asset and have a higher risk for the borrower. Therefore, your creditors on those types of debt would be more eager to receive your payments and are more unwilling to negotiate with you.
Debt relief service
Debt relief services may be used as a general term relating to both credit counseling and debt settlement. Credit counseling is a not very good alternative to debt settlement. Although they seem alike in many ways and share certain similar steps, credit counseling has more pitfalls and does not offer the same end result as debt settlement.
In credit counseling, you merely get advice on how to deal with your financial situation by credit counseling organization. They offer their services through local offices, online or by phone. Trained professionals will look at your whole financial situation and work with you on a personal plan which will help resolve your financial issues. There is no saying how this may end – will you be left with more debt or be debt-free? Will you have a higher or lower credit card score? How will it affect your credit report? The question you really need to ask yourself is how much can you trust the advice you have received from those organizations.
Many say it is an advantage that those services are provided by non-profit organizations compared to credit card debt settlement companies which are pro-profit. However, what they do not tell you is that this does not mean their services are free. In fact, in many cases, they have very high fees or even request you to make donations to the organization.
It is a somehow complex method of debt refinancing. It involves you taking up yet another loan to pay off many other. You might be able to achieve it through a second mortgage or a home equity line of credit.
A second mortgage, as the name suggests, occurs when the first one is still in effect. It will receive payments only after the first has been paid off. Therefore, its interest rate tends to be higher. Naturally, the amounts borrowed would be lower than with the first one. It can also last from one to twenty years but the shorter the period, the higher the monthly payments. It also comes with lending fees.
Another thing is that those loans require you to put up your home as collateral. It is how the borrower secures the repayment of your debt. It serves them as a protection if you do not pay. For you, that means that if you cannot make the repayments or in some cases, you are late with your repayments, you can lose your home.
A line of credit is a flexible loan from a bank. The bank will offer you a limited amount of money you can access as needed (in your case to repay your debts). However, you have to repay the bank – either immediately or over a specified period of time. It is something banks have started doing recently and it might not really work for you. You have to be very careful. Plan everything in advance on your own and pray for the best.
Debt consolidation is very hard to achieve and is not recommended. Even after this procedure, you will still be in debts. It is meant to only settle a fraction of your debts. It may leave you in a slightly better financial position, but you will not be debt-free and will still have a lot of payments to deal with, not to mention you credit report situation.
You don’t want to go there. Although bankruptcy can be an option, it has effects that will last long and are far-reaching. Bankruptcy information goes on your credit record and stays there for ten years. It is true that people who file for bankruptcy sometimes pay less because the court order may say they do not have to pay some debts. However, it can cause you many problems, for example, when you are trying to buy a home or life insurance.
In some cases, bankruptcy may even prevent you from getting a really good job because your future employers would want to see your credit record and a bankruptcy case is always a red sign. The thing with bankruptcy is that it is a legal procedure – it is the legal way to do it. Not to say that other options are illegal, but filing bankruptcy is what you are supposed to do when you have too many debts you can’t repay. Needless to say, it comes with many negative consequences as well.
There are two main types of personal bankruptcy. They are dealt with in Chapters 7 and 13 of the Bankruptcy code. You should not forget that these are very expensive legal procedures. Both types of bankruptcy must be filed in special federal bankruptcy courts. Meaning you will need an attorney to represent you. Filing fees are several hundreds of dollars and attorney fees vary depending on who you choose.
What is the difference between Chapter 7 and Chapter 13?
Simply put, one is straight bankruptcy (Chapter 7) and the other is not (Chapter 13). With straight bankruptcy, all your assets are going to be sold and the money gathered would be used for repayment of your debts. When we say all, you should know for the purposes of bankruptcy, certain assets are exempted. The state makes sure that you have enough left to sustain a minimum standard of living.
For example, your only home (if its cost is up to a certain amount. If it is too expensive, it may be sold and you can get a fraction of the proceeds to get a cheaper place to live in), some work-related tools in your profession or basic household furnishings (again depending on their value) can be exempt. Your property will be sold either by an appointed court official or turned over to your creditors.
There are also eligibility requirements for both Chapters you need to make sure you cover. In some cases, you will not be allowed to file under a certain chapter. That is because an individual filing under Chapter 7 will get a discharge on debts and will no longer be liable for them. For example, before filing under Chapter 7, you need to satisfy a “means test”. However, bear in mind that the right to a discharge is not an absolute anyway (some types of debt are not discharged, such as student loans or alimony and child support) and you might not even get it.
What does Chapter 13 offer then?
Chapter 13 offers a more lengthy proceeding to give you a chance to keep some of your assets. In this case, the court approves a repayment plan which allows you to use your future income to pay back your debts. This plan usually varies between three and five years. You get to keep things you may otherwise lose such as your house that has a mortgage or your car. You don’t have to surrender any property under Chapter 13. After the procedure ended and you have made all the repayments under the court-approved plan, your debts will be discharged. However, do not forget there are eligibility conditions here too.
You still need to hire an attorney and pay them, pay for the procedure and court fees. Plus, you have to be paying constantly over five years. That takes a lot of financial commitment. Chapter 13 bankruptcy is unlike what you will get with debt settlement where the procedure is much faster, easier and cheaper. With debt settlement, you will have to make regular payments for only a couple of months.
Important things to remember
A very important detail about bankruptcy procedure is that you must get credit counseling. It must be with a government- approved organization and must be conducted within six months before you file for bankruptcy relief. You can find a list of such organizations at the U.S. Trustee
- Chapter 7 Program
- Chapter 13 Program
Are there any options you most definitely do not want to try?
When you are very much in debt, everything becomes a problem. At some point, all your options sound bad. Most of them come with many risks (sometimes avoidable, sometimes not) and uncertainty. However, there are scam options which you want to stay away from.
– Credit repair
This is a service usually offered to people who have a really poor credit history. A so-called credit clinic claims that they can clean your credit report. Of course, this service is provided at a fee. First of all, be aware that there are federal and state laws forbidding any company dealing with debts to request payment of a fee before it has performed any kind of service to the client.
Secondly, it is impossible for them to legally do what they had promised. Some of them could falsify documents (an actual crime) and they can be sued under the Crime code. No one will take that risk for you for the fee you are paying them. The truth is, in most cases, they will request an advance payment from you and you will never hear from them again. Make an honest effort to repay your debts and improve your credit report.
Stay away from credit clinics – they have nothing to offer you. The things they can actually do, you can do them yourself for free. Contact a debt settlement company and get your debts settled soon.
– Advance free loans
The companies who offer this service require you to pay them in advance. It is illegal for them to request for payment before they have rendered any service. You must be wary of those loan guarantees. However, some creditors offer an extension of credit through different means such as telemarketing. They require an application or appraisal fee in advance. While what they do is legal but they can never guarantee you will get a loan. The truth is no one can promise you that.
The legitimate service will not even claim that you receiving a loan is likely to happen (to be honest, if it was, you would not have to use their service, to begin with). In some cases, the fees these scam companies require vary from a hundred to several hundreds of dollars. Do you want to lose your money over nothing? We guess not.
We tried to give you a complete overview of what lies ahead of you, downfalls and how to avoid them. We believe debt settlement could be the best option you have because it is efficient, fast and relatively affordable. As any other scenario, it comes with some risks but they can be easily solved. Stay informed and be careful when choosing your financial options.