Debt Solutions to Consider to Avoid Bankruptcy

If you have debt and are struggling to pay it, there are strategies you can implement to get out of debt. You can sign up for a debt management program, consolidate the loans, or opt for debt settlement. 

However, the best solution for you depends on the type of debt you have, the total amount owed, and how much you can pay towards the debts. Whatever your preference, the debt strategy you choose could either get the results you want or cause more problems. 

In this post, we delve into two debt solutions that can help you find relief and one you should avoid at all costs.

Debt Management Plan

A debt management plan allows you to pay off a high-interest debt without taking a bank loan and at a rate you can afford. If you have unsecured debts like credit card balances, overdrafts, and personal loans, it might be ideal for you.

Non-profit credit counseling agencies usually offer debt management plans. Your agent performs a detailed analysis of your income and expenses. They use these findings to create a household budget that includes a fixed monthly payment you can afford. This plan is then presented to your creditors. 

The main benefit of a debt management plan is that it offers debt consolidation without taking on more debt. It makes it easy to be more organized and punctual with your monthly payments. 

Debt management offers a realistic plan to be debt-free in three to five years. You won’t have to worry about late fees and calls from collectors. Regular payments help improve your credit rating. 

During the duration of the debt management plan, you won’t be able to use credit cards or have access to other forms of credit. The plan requires commitment, and you risk losing any concessions creditors made if you drop out of the program – lower interest rates, lower monthly payments, waived fees, etc. 

Debt Consolidation

This debt solution process combines your debts and liabilities into a single loan with more favorable payment terms and interest rates. It is a great debt solution, especially those who qualify for low-interest loans. 

There are multiple methods to consolidate your debt, with the primary solutions being a balance transfer credit card and a fixed-rate consolidation loan. 

With a 0% interest balance transfer credit card, all your debts are transferred into the card. You have to pay the balance in full before the promotion period lapses. This solution isn’t for everyone, as it requires an extremely good credit score to qualify. 

Alternatively, you can apply for a consolidation loan and use the money to pay off your debt and pay back the loan in installments as per the set terms. While you may qualify for this loan with a bad to fair credit score, a higher score will attract lower interest rates. 

You may also take a home equity loan or 401k loan. However, these loans come with risks to your home and retirement, respectively. 

Do you still have questions about debt consolidation?  If you live in Florida, you can learn more from Freedom Debt Relief.

Debt Settlement

Debt settlement may be a viable solution if your obligation has been forwarded to collections. It’s basically an agreement wherein the lender accepts less than what you owe. Debt settlement companies often offer it as a service as an alternative to resolving growing debt or avoiding bankruptcy

Debt settlement has its upsides. You pay less than you owe to the debt settlement agency, which in turn pays your creditors. Everyone gets paid, and you move on with your life. 

But things aren’t that simple.

Debt settlement can be a long, stressful process, especially since no agency can guarantee results. It usually takes 26 to 48 months for debt settlement companies and creditors to agree. Creditors report delayed payments to credit bureaus, and your credit score plummets.

However, it should also be noted, your credit score is the least of your worries if settlement is a viable option for you. Moreover, you can always rebuild it once your debts are in check. 

The One to Avoid

Filing for bankruptcy protection certainly has its advantages. However, there’s a reason it’s looked upon as “the nuclear option.” You’ll struggle to get anything on credit for up to 10 years.

Bankruptcy can also hamper your ability to get an apartment, insurance or a job. It is advisable to avoid this solution if at all possible. Try to make one of the other approaches listed here work instead — if you can.

Know Your Rights

The road to getting out of debt can be quite scary and marred with challenges. You have to deal with debt collectors and keep an eye out for scammers, among other risks. However, knowing your rights can make the journey less bumpy. Understanding the debt solutions to consider and one to avoid is a good start.