Debt Solutions - Which One Is Right For You?

When you're struggling with a large amount debt

, there are many types of debt solutions that you could consider pursuing. Each one has some benefits, but ultimately, each debtor has to decide what's right for his or her own situation. Understanding what the various debt solutions have to offer will help you make an educated decision.

Debt Consolidation

One of the most popular options for handling debt is debt consolidation. With debt consolidation, the debtor takes out a new loan and uses the money from that loan to pay off other debts. This can make things easier because it puts all of your debt into one package and you only have one monthly payment to make rather than many. The problem with this approach is that it still takes a long time to pay off your debt. You're not actually addressing any sort of reduction of the debt with this strategy. You're just putting it together into one package though you may save a little bit depending on whether or not you can get a slightly lower interest rate.

Bankruptcy

Some debtors who have a serious amount and cannot see any means to pay back or get out of the debt may look to bankruptcy for help. With this option, you file for bankruptcy with the court and have your debt completely discharged. While this can help you get out of debt quickly, your credit history will be completely decimated. The bankruptcy will stay on your credit report for the next 10 years and it will be very difficult to get approved for any kind of financing again in the near future.

Debt Management Plan

A debt management plan is an option that is pushed by many credit counseling services. With a debt management plan, the credit counseling service talks to your creditors and gets them to lower your interest rates. Once the plan begins, you begin making payments to your credit counseling service. The credit counseling service then takes the money that you pay, keeps a certain percentage of it and then sends the rest to your creditors. This is a pretty convenient option, but it also costs a lot of money. It takes several years to pay off your debt and you could do the same thing without the help of the credit counseling service.

Debt Settlement

Debt settlement is an option that many creditors turn to which can help get you out of your debt more quickly. With this approach, you can enlist the help of a debt settlement attorney to help with the negotiation. The debt settlement attorney will contact your creditors for you and propose a settlement. The creditor writes off some of the balance and agrees to a lesser amount than you owe. You will then pay a lump sum or reduced, more affordable monthly payments. This makes it easier to get out of the debt by paying lower payments over time

This option can be more favorable than bankruptcy. Since you're still paying back some of what you owe, the information appears as settled on your credit report and may carry less of a ""stigma"" than bankruptcy in the long run.

While all of these options are worthy of consideration, debt settlement can be the most viable option to pursue. It gets you out of your debt more quickly and allows you to plan for a brighter financial future.

by: Alvin Clark

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