No matter how hard you try to get ahead, you're overwhelmed by bills. You look into different financial options to pay off your debt, but the terminology is a bit confusing. Your friends suggest following certain tactics, but no matter how helpful they try to be, they just seem to disconcert you even more.
The internet is a great tool to learn about almost anything... if you know where to look and have the time to sit down and read all the content. That's why I've written this brief summary of four financial options used by many consumers to get out of debt, including what each one means, and their main pros and cons.
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Debt Settlement
DEFINITION: your debt is settled for less money than what you owe your creditors. This can be done thanks to a Debt Settlement Company's knowledge of this field and their effective negotiation skills with creditors.
MAIN PROS: settle your debt for less than what you owe / an alternative to filing bankruptcy / one of the quickest options to get out of debt
MAIN CONS: your credit score will be affected negatively in the short term / doesn't stop creditors from taking legal action against you
Credit Counseling
DEFINITION: a Credit Counseling Agency designs a repayment plan that fits your budget in order to pay off your debt. The Agency submits this plan to your creditors and, if approved, you begin making your new payments.
MAIN PROS: a Credit Counselor creates a repayment plan you can afford / the Counselor educates you about financial topics
MAIN CONS: some creditors may deny you future loans because of enrolling in Credit Counseling / you'll experience a lot of the same credit problems a consumer that files for bankruptcy goes through.
Debt Consolidation
DEFINITION: in order to pay off unsecured loans (such as a credit card bill), you take out a secured loan (such as an equity home loan). A Consolidation Company collects your info, examines it, and negotiates with your creditors new monthly payments you can afford.
MAIN PROS: your loans are gathered into one monthly payment / your monthly payments are generally lower
MAIN CONS: you could lose your home / longer time to pay off
Bankruptcy
DEFINITION: you declare yourself unable to pay your debt under Chapter 7 or Chapter 13. Chapter 7 offers you a "fresh start", while Chapter 13 places you on a repayment plan.
MAIN PROS: under Chapter 7, many of your remaining debts are cancelled, getting a "fresh start" / most States will allow you to exempt your home and other essentials
MAIN CONS: stays in your credit report for 10 years / tough to build credit afterwards / under the new Bankruptcy Law, fewer debtors will be able to get a "fresh start" and most will be placed on a repayment plan under Chapter 13 / higher attorney fees due to the new law
Keep Learning
Knowledge is power, so if any of these options seem appropriate for your particular case, be sure to keep learning about it and see a professional that can guide you through the process.
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