You should not bang your head against the wall when debt gets you down as you are not the only one who faces such a condition. In fact, research says that consumer debt alone accounts for the major portion of the nation’s debt.
However, it is true that debts can really be overwhelming irrespective of the reason you are facing such a situation. You may be in a debt dilemma for several reasons such as:
- An illness
- Sudden unemployment
- Not being able to manage your money and much more.
It is needless to mention that if you want to be solvent again you will need to choose the right debt relief provider without setting your selection parameter on the ads that promises quick fixes because there aren’t any. Once you have done that, you should now choose the right debt relief option according to your financial situation.
Debt relief and bankruptcy
Lots of companies make lots of promises about debt relief and will also advertise their service aggressively but they will seldom pitch their ads on bankruptcy. Yes, bankruptcy, though you may not believe it, is also a debt relief option. However, the debt relief companies do not advertise this service mostly because this is an option that people consider as their last option. The reasons behind this include:
- It has a negative impact on the credit score for a long time, even for ten years
- It will deter your ability to get credit, insurance, a job, or even rent a place.
The Federal Trade Commission, FTC however cautions the consumers to be wary about and read between the lines of the ads that come in the newspapers, magazines, TV, billboards and even in the telephone directories.
Typically, ads for bankruptcy relief may promise:
- Consolidating all your bills into one monthly payment without any need to borrow money
- Stopping credit harassment, tax levies foreclosures, garnishments and repossessions
- Keeping the property and the most common one
- Wiping out your debts!
Bankruptcy is actually the protection and assistance provided by federal law that the bankruptcy attorney uses to consolidate your bills. However, if you go for such an option being tempted by these ads, it will eventually hurt your credit as well as cost you attorney fees. Visit reliable sites of debt relief companies to get more infoon bankruptcy and other debt relief options, or continue reading.
Other possibilities of debt relief
There are also a few other possibilities that you may consider apart from bankruptcy if you are struggling in making your monthly payments of your debts.
- You can talk to your creditors directly when you start getting calls from them or even from the debt collectors. However, it is best to start early as that will portray your intent to get rid of your debt to the creditors. Most of the times, if you can make them believe that you are really facing hard times with your finance just due to the debt, they will offer you a modified payment plan with longer tenure or lowered rate of interest.
- If you do not want to follow a DIY process, you can look for a reliable credit counseling service and get in touch with them. They will work with and for you and talk to your creditors on your behalf to develop a better and feasible debt repayment plan. They may also suggest you to deposit money with them each month to pay your creditors out of it. If you are lucky to find and work with a nonprofit organization, you will have to pay little or nothing for their services.
However, consider all your available options carefully before you make any final decision especially like taking out a home equity line of credit or a second mortgage to consolidate your debt. Remember, there is a fair bit of risk in such a path because the lender will require your home as collateral which they can repossess in case you fail to repay.
Consequences of each
Any form of debt relief you choose will have its characteristic consequences. It is therefore required that you know about these before you choose one for you.
- A DIY process and consultation with your creditor for a lower interest rate and an extended tenure may not have any impact on your credit score.
- A debt settlement that will reduce your original loan amount will on the other hand will reduce your credit score as well as make the money you save in the process taxable. Therefore, you may not save anything in the process.
- Taking out a debt consolidation loan may allow you to roll all your debts into one single payment but then depending on the type of loan your take out, secured or unsecured, the consequences will vary. A secured loan may result in the loss of the collateral and an unsecured loan may reduce your credit score, in case of non-payment.
- Bankruptcy, the likely alternative in a dire situation on the other hand will have the most serious effect. This will depend on the type of personal bankruptcy you choose, Chapter 13 or Chapter 7 bankruptcy. Its effects can remain in your credit history for anywhere from seven to ten years.
Therefore, it is always advised that you talk to a professional credit counselor before you choose a debt relief option. They will analyze your debt and your financial condition and then suggest you the most appropriate approach. You will be better off this way and avoid any unwanted consequences.
Filing for bankruptcy
Last but not least, you should know the right process to file for bankruptcy. This being a legal process will involve a lot of formalities and require abiding by the norms and rules. Make sure that you get a counseling 180 days before filing for bankruptcy protection from a government approved organization. It may also need you to enroll and complete a debtor education course before your debts can be discharged.
It is always advised that you take help of an expert bankruptcy lawyer to avoid any lapses in the filing process.