If you are someone who has some debt that you would like to pay off, you need to develop a method for doing so. The method, in large part, depends on factors such as the amount of debt you owe, your income, the importance of your credit rating, and your monthly expenses. The decision of how to pay off debt : Credit Counseling or Debt Consolidation… can be a tough one, but to help you do so, here are six options to consider for repaying your debt.
Pay On Your Own
If you want to pay the debt off on your own, you will need to assess the debt, put together a repayment plan, and stick to the plan to make sure it works, making necessary adjustments along the way. This may include calling your various lenders to whom you owe and working out a payment schedule, and even asking for a lower interest rate. At that point, you are responsible for sending payment to your creditors monthly, so how you repay and how long it takes you to do so largely depends on you. Any debt repayment plan should consist of the sum total of your debt considered, both secured and unsecured.
Consumer Credit Counseling
Working with a credit counseling agency can be helpful. The agent can account for your financial situation and put forth a plan with which you can manage to make a monthly payment for all of your unsecured debt. The agency will typically put you on a debt management plan that includes a lower interest rate and a smaller minimum payment to make to each creditor. Depending on how much debt you have, credit counseling can take anywhere from 3 to 5 years.
An important thing to keep in mind is that using a credit counseling agency will not hurt your credit score, although while in this debt management plan you are no permitted to use your credit cards so to not increase your debt more.
The idea of debt consolidation is that all of your debts can combine into one single monthly payment. This way, you are paying an interest rate on only one payment rather than several. A lot of debt consolidation programs involve taking out a new debt consolidation loan, and using that loan to pay off all of your unsecured debts. Then you pay off the loan with one larger payment a month. Other types of debt consolidations program are more in line with a credit counseling approach where your monthly payment is combined, but your loans stay intact.
This is a method you can qualify for only if you are already behind on your payments. When you work with a debt settling agency, you will be paying a monthly fee to the debt settlement firm, who in turn negotiates a lump sum payment with your creditors that is going to be lower than the full amount you owe. When the settlement has been reached, the fees you have been paying the debt settlement company will be used to pay off these newly negotiated sums.
It is important to note that simply using a debt settlement agent in no way guarantees that the creditors will accept the settlement offer. If the settlement is not successful, you may not receive a refund. The average settlement is 78% according to the American Fair Credit Council and considering that you might need to pay taxes on the debt you have been forgiven, you may not ultimately walk away with much along the lines of savings.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a method to relieve either all or some of your outstanding debts. There are some conditions attached to this. For one, you will need to pass a means test and go through credit counseling to prove out that you do not bring in enough income to be able to pay off the debt on your own. Some states will require forfeiture of some of your assets in order to repay your debt, which may include your car or your home if those have equity. This would wipe out or discharge most of your loans, but tax debts, student loans, as well as child support cannot be voided.
Chapter 13 Bankruptcy
This type of bankruptcy allows you to repay your debts within 3 to 5 years, with any other remaining debt after the bankruptcy being discharged. This is the type of bankruptcy you can file for when you make too much to qualify for Chapter 7 bankruptcy, but have assets you want to retain. With chapter 13 bankruptcy, you will still be liable for paying certain tax debts, child support and alimony, wages owed to employers, as well as your house and car payments, including back payments you may owe on both.