How Can I Get Out of Debt?

Help is available if you are struggling with bad debts. Some people go for bankruptcy, and some people go for debt consolidation. A lot of people have eliminated debts using one of these two methods. So, let’s learn about these two options. 

Bankruptcy

Some people manage to get rid of their debts by paying off their savings and incomes. They can do it without changing the structure of their debts. They might have to change their lifestyle, but they become debt-free. On the other hand, some people walk away from debts. They do this either by declaring bankruptcy or defaulting. People have some good reasons for choosing bankruptcy. 

According to the American Bankruptcy Institute, in 2016, around 500,000 people filed for chapter 7 bankruptcy. 95.5% of them walked away debt-free. 

The institute also found that 166,424 individuals became debt free after filing a chapter 13 bankruptcy. However, 164,626 individuals could not. 

After filing chapter 7 bankruptcy with an attorney, your assets will be exposed to a trustee collecting for creditors. However, you will get a fresh start. 

When you file a chapter 13 bankruptcy, you can keep some assets. You should have a regular income to pay off your debts. However, your credit report will show bankruptcy for up to 10 years. You will find it hard to get a loan or credit card during this time. Moreover, this may not be good for your reputation. Lenders or employers can easily get your credit report and check for bankruptcy. 

What are other options available to me? 

Filing bankruptcy is not the only option available to you. You can work with debt management companies, go for debt settlement or debt consolidation loans. 

You can work with a credit counselor. Approach a legitimate nonprofit organization. Make sure that the National Foundation for Credit Counseling accredits it. You will have a 30-40 minute counseling session with the counselor. He will examine your monthly income and expenses and then recommend a solution.        

The counselor will recommend you one of the following solutions:

• Debt management program 
• Debt settlement 
• Bankruptcy  

A debt consolidation loan is a DIY approach. 

Debt Management Program

If you are making enough to make a monthly payment, you can avail the services of one of the reputed debt management companies. The best thing about this method is, you are not taking a new loan. Your counselor and creditors will agree on a monthly payment schedule. Your interest rate and monthly payments will be reduced. It will go to your credit report but will be removed after you exit the plan.

Debt settlement
 

If you cannot schedule monthly payments, you can go for debt settlement. It is less dire than bankruptcy but can be risky. Here is how it works:

You will send money to a debt settlement company instead of your creditors. The company will make a one-time settlement offer to your lenders. However, not all credit card companies and lenders deal with debt settlement companies. 

Debt Consolidation

You can also take a debt consolidation loan from a credit union, bank, or an online lender. You can use this money to pay off your other debts. A debt consolidation loan has a low-interest rate. However, the loan is secured by your assets. The asset can be your home equity. And, you are opening a new line of credit. This will affect your credit score as well.