If you’re facing crushing debt, it’s beyond time to act. The good news is that you have several options from which to choose, depending on your situation. Let’s look at some possibilities.
According to Debt.org, the average household has a debt, including mortgage, of $132,529 — an 11% hike during the past 10 years. In the meantime, auto loan and credit card debt are rising above the $1 trillion mark. Student loan borrowers owe an average of $37,172 — up 186% in the last decade. So, there are many consumers in need of relief.
Debt Relief Options
As a consumer, your basic options for debt relief are credit counseling, debt management programs, credit consolidation, debt settlement, and bankruptcy. Let’s look at the pros and cons.
Debt Relief Pros
Credit counseling. Many nonprofit organizations provide free credit counseling, although some charge nominal fees. For-profit outfits typically always require fees. When examining your options for debt relief, consider a credit counseling service.
Lower interest rates and monthly payments. A debt management program or consolidation loan will likely pare what you pay in interest, and you usually will get more manageable monthly payments. The knowledge that you have a doable monthly payment that ultimately will erase your debt can ease much of the stress of your financial situation.
An opportunity to start fresh. The stress of coping with debt that’s gotten out of hand can be dispiriting to consumers. If you want an opportunity to finally show that you’ve learned lessons, bankruptcy — despite its negatives — will provide that. A successful Chapter 7 or Chapter 13 bankruptcy can give you the clean slate you need to begin anew.
Reduced debt load. Because creditors want to be paid something rather than nothing, your credit card issuer may forgive as much as half your debt. They understand that, in situations like yours, it’s probably best to work with you. They also know that if you file bankruptcy, they get zero.
Stops collection calls. Debts that haven’t been satisfied in 180 days will likely get sold or forwarded to collections. Constant calls may ensue to get you to pay. Signing up for a debt relief program will get those agencies off your back.
Debt Relief Cons
Time frame. You didn’t get into debt overnight, so don’t expect a quick fix to your financial situation. It could take up to five years to get yourself together. You need time, commitment, and discipline to erase debt.
No guarantees. While creditors typically will work with you, they aren’t required to and sometimes won’t. While it doesn’t often happen, it’s possible that you could make deposits into a debt relief program savings account for many months, only to learn the lender turned down the offer. If you do choose debt settlement, make sure you get an agreement from the lender in writing stating its intention to work with you.
Service fees. No matter which debt relief option you choose, you will usually have fees. With debt management, the fees are incorporated into your monthly payment. Debt settlement fees are based on your debt total. Attorney fees for bankruptcy vary.
Late fees and other penalties. If you’re not paying down your debt, you’ll get hit with late fees and a higher interest rate, causing your debt to grow. This can happen with debt settlement, a debt management program, or debt consolidation loan. Know that failing to make at least minimum monthly payments on your debt will cost you.
Credit score gets hit. This is certain with debt settlement or bankruptcy, but then again, your credit may already be in shambles. You may have to start all over, though, and repair your credit over time.
In examining your options for debt relief, you now know the pluses and minuses. Take an honest look at your situation and see what works for you.