When you are in debt, creditors are hounding you, you're afraid of losing your home or car, it's may seem like you've run out of options. In reality, there are several debt relief options that can help you through this difficult situation. Some of the best options are realistic budgeting, credit counseling, debt consolidation, debt management plans and as a last resort, bankruptcy. No one knows your current situation better than you so in this article, we'll explore each of these options to see which best suits your situation.
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The first step or option to explore is realistic budgeting. This is most often the cause of debt. Too often people just don't take the time to sit down and put on paper what their total income is and what their total monthly expenses are. Therefore, they overspend. If you think a budget would help you control your spending, thus your debt, the first thing you need to do is develop a realistic budget. Write down exactly how much money you have coming in each and every month. Be sure to list your income from all sources, but only if you can depend on that money being there and put into your account every month. That's the fun part. Now, the not so fun part; list all the expenses that you have. Expenses can be divided into two parts; fixed expenses and expenses that vary.
The fixed expenses are those that are the same each and every month like your mortgage payment or rent, car payment and insurance. Expenses that vary are miscellaneous like recreation, clothing, unexpected fees for kids activities etc. The goal is to make sure you have more income than expenses. If you don't, you need to look at the expenses in the category that varies and decide where you can cut expenses; save on the utility bill, forego the movies or concerts, eat out less often or not at all, fix less expensive dinners, don't buy unnecessary clothes or accessories. In general, make do with what you have.
The second option to help you get some debt relief is credit counseling. Credit counselors will sit down with you, advise you on managing your money, assess you situation and help you create a workable budget if you are having trouble doing this on your own. They will also help you work out a repayment plan with your creditors often trying to lower interest payments or suspend payments temporarily. Keeping track of your mounting bills is also part of their services. Look for credit counselors in the phone book or on the internet. Try to find counseling that is done in person. Do a check on them and make sure they are reputable, trained in the areas of consumer credit and money management.
Debt consolidation is just what the name implies. This option may be able to lower your cost of credit by consolidating your debt through a second mortgage or home equity line of credit. These loans require you to put up your home as collateral. There is the possibility of losing your home if you can't make the payments or they are late. Look for debt consolidation companies locally or on the internet. Make sure they are reputable and read all the fine print before signing any agreement.
DMPs or Debt Management Plans are very helpful to some people and are sometimes the only way to get out of debt short of filing bankruptcy. DMPs are not counseling. With Debt Management Plans, you deposit money each month with the credit counseling organization. They pay your unsecured debts according to a payment schedule they develop with your creditors. The creditors may agree to lower your interest rates or waive certain fees. Before you agree to do this, find out how long it will take to complete the plan until all of your debts are paid off. You may have to agree to not apply for or use credit until bills are paid off.
Personal bankruptcy is considered the last resort because the results are long-lasting. Bankruptcy stays on your credit report for 10 years and makes it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. While this doesn't sound too good, it is a legal procedure that offers fresh start. There are tow types of personal bankruptcy; Chapter 13 and Chapter 7. Both must be filed in federal bankruptcy court and the filing fees for Chapter 13 is around $183 and $200 for Chapter 7. Of course, attorney fees are additional and vary.
So you see, there are several debt relief options that will help you. By choosing the option that best fits your current situation, you can reduce or get out of debt and with careful budgeting it is very possible to stay out of debt permanently.
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