Debt Management Options
When it comes to managing your debt, you don't have to do it alone. There are a number of companies that specialize in assisting debtors get out of debt. Before you choose a debt management solution, make sure you know which options are available.
Debt Consolidation
When you consolidate your debts, you are essentially combining all your debts into one. So, instead of having multiple creditors and lenders you will only have one. With debt consolidation, you use a loan to pay off your creditors. Once your creditors have been repaid, you then pay back the loan in a single payment. In essence, debt consolidation allows you to reshuffle your debt in a way that makes it easier to handle.
Debt Counseling
Debt counseling companies are also known as consumer credit counseling companies. These companies work with your creditors to lower you interest rate and monthly payment to make paying your debts easier. Similar to debt consolidation, debt counseling enables you to make one monthly payment towards your debt. The major difference is that there is no loan with debt counseling. Instead, the debt counseling company divides up your monthly payments and sends it to your creditors.
Debt Settlement
Debt settlement companies aim to help reduce your debt by negotiating a lower payment for your debt. With debt settlement, you stop paying your creditors and instead send a monthly payment to the debt settlement company. Each payment you send is placed into a savings account. After a few months, the company attempts to offer a settlement to your creditors. If the settlement offer is accepted, payment is sent to the creditor.
Bankruptcy
Bankruptcy allows you to eliminate, or discharge, certain kinds of debt entirely. Debts like credit card, medical, auto, utilities, or rent can be eliminated through bankruptcy. This is usually an option for consumers that have a high debt load in comparison to their annual income. There are two kinds of bankruptcy, one that allows you to cancel your debts and another that requires you to eliminate your debt through payments. Typically, you are required to pay for debts that cannot be discharged.
Once you are aware of the various debt management options, you can then begin exploring the pros and cons of each to make an informed decision on the option for you. Make sure you fully understand both the advantages and disadvantages of any solution before making your final choice.
