5 Ways to Get Out Of Debt - Part 2
Debt settlement is when you tell your creditors that you cannot pay them the full amount that you owe them, but that you can pay a portion of the amount owed, if they are willing to cancel the debt. This option is a bit more drastic than the previous two options. You can attempt to negotiate on your own with your creditors, but there are debt settlement companies who can do it for you and they are more likely to get a lower payment because they have the experience needed to do so.
When you go to a debt settlement company, they are going to need to know all of your financial information, including what resources you have that you can use to pay off the debt. Once you have signed all of the paperwork necessary, you will stop making payments to your creditors and start making the payments to the debt settlement company. This money will be placed in escrow until you have enough to make a settlement offer to one of the companies.
Accumulating this money in an account can take several months, but once it's there, the company will begin contacting your debtors and making offers. This will be reflected on your credit report as settlements, and they can lower your credit score
so you need to take that into consideration before using debt settlement to get out of debt.
Bankruptcy basically means that you cannot pay the debt that you owe. Most of us have heard of bankruptcy at some point, but what you may not know is that there are two types of bankruptcy; chapter 7 and chapter 13. Chapter 7 means that all of your assets are liquidated in order to pay back your creditors. Most people believe that they lose everything if they file chapter 7 bankruptcy, but that is not true and the majority of people are allowed to keep their homes, property and vehicle. It will, however depend on what is covered by the exemption law in your state.
Chapter 13 act is perhaps most similar to debt consolidation. You will create a plan for paying your debt over the next 3 to 5 years. Your payments will no longer go to the creditors but to a chapter 13 trustee, who will be in charge of your repayment plan. In many cases, people are able to save their homes and vehicles by using chapter 13 bankruptcy, because it gives them time to catch up on their payments.
DIY - Get Out of Debt
A "do it yourself get out of debt" plan requires you to take the steps needed to get yourself out of debt without using one of the above mentioned methods. You can inquire on your own about lower interest rates as well as lower payments, ask about hardship programs, work on your personal budget and come up with a payment plan that works for you.
Of course, this not going to work out for everyone, but it may be the best option for some people. It requires perseverance and discipline. There are also many different programs that you can use to get out of debt on your own, such as focusing on the smallest amount of debt owed to a creditor, and paying it off, while still making minimum monthly payments on the rest of your debt. Once the smallest debt is paid off, you can put that money toward the next smallest amount of debt and so on until, you are out of debt.
No matter what level of debt you find yourself in, there are options out there that can help you get out of debt and reduce the amount of stress that you have to deal with on a day to day basis.