Getting out of debt is never an easy process so never believe anyone who says so. There will be many tough choices to make on a number of counts because all the options have their own advantages and disadvantages. Some practical options of getting a grip on your debt:
Do It Yourself
Repaying the debt by oneself involves accurately assessing the debt and monthly savings possible. You will need to approach your principal creditorsand request for a lower interest rate, extended time or even negotiate a settlement. Depending on the extent of the debt, you may need to make some hard choices like selling off some assets to pay off your creditors and making radical changes to your lifestyle.
Credit Counseling
The agency will analyze your budget and arrive at a monthly payment that you can afford. A customized debt management plan will be drawn up with a lower minimum monthly payment and reduced rate of interest for every creditor. The DMP is usually in force for three to five years, during which no credit card usage is permitted. The debt relief process has no impact on your credit score even though your being on the DMP is reported.
Debt Consolidation
Debt consolidation is a process that aggregates all debts into one requiring only a single monthly payment to be made. Often all the individual debts are paid off with a loan of an equivalent amount. The terms of the new loan depend on how good your credit score is.
Debt Settlement
Usually done by professional debt settlement firms, the process involves intense negotiation with creditors to make them accept a part payment as a full and final payment by showing that the debtor is in no position to pay the full amount. You will be required to stop making payments to the creditors to increase pressure on them, and instead, route the payments to the debt settlement agency that will use the corpus to settle the debts at a discount of 50-60% on an average. There is no assurance that the method will succeed, and your credit score will take a substantial hit.
Bankruptcy
If you can demonstrate that it is impossible for you to pay off your debts, you can qualify for Chapter 7 bankruptcy. Your assets like your home and vehicle will be liquidated to pay off your creditors. All obligations will be wiped off with the exception of student loans, child support, tax, etc. If you wish to retain your assets, you can file for bankruptcy under Chapter 13. Under this, debt repayments are completed within three to five years with all unpaid debts discharged. You are compelled to make payments for the house and the car as well as child support, alimony, and the past and current taxes.
Conclusion
Irrespective of the method adopted, getting out of debt is by no means an easy task. The process is painful, and you may lose your assets and dignity not to speak of the damage to your credit score.