Are you buried in debt? Are your creditors threatening to sue you and garnish your wages? Are you facing foreclosure on your home? If you’re crumbling from unmanageable debt burdens, bankruptcy may be a tempting solution to eliminate your debt problems. But bankruptcy is a drastic measure and should always be taken as a last resort. Read on to learn the alternatives to bankruptcy.
A debt management plan (DMP) is a repayment agreement with each individual creditor. The creditor will agree to take a lower interest rate in exchange for getting paid back much faster than the normal monthly minimum payments. The creditor will close each account so the amount owed cannot increase nor can the credit cards be used again. This helps the creditor ensure the agreed upon monthly payments will be sufficient to pay off the amount owed within the specified timeframe. Most debt management plans have a payment similar to the required monthly minimum payment and will have the debt paid off in approximately 4-5 years.
Credit counseling often involves negotiating with a debtor’s creditors to establish a debt management plan (DMP). DMPs, set up by credit counselors, usually offer reduced fees, interest rates, and payments. Credit counseling may also involve offering credit education to consumers about spending habits and how to avoid incurring debts that cannot be repaid.
Debt consolidation is the process of taking multiple unsecured loans and debts – such as a number of credit card debts, medical bills or lines of credit, and combining them into one affordable monthly payment. The usual benefits of debt consolidation are a lower monthly payment, lower finance rates and fees, and sometimes canceled fees or penalties that have accrued over the months because of late or missed payments. Debt consolidation programs are difficult to qualify for since they require perfect credit and no late payments on accounts. This usually disqualifies most applicants since the people looking for a debt consolidation loan typically cannot afford their credit card bills, and as such most lenders will not extend them a new loan.
Debt settlement, also known as debt negotiation, entails negotiating with creditors to reduce overall debts in exchange for a lump sum payment or a series of payments. A successful debt settlement generally occurs when the creditor agrees to forgive a percentage of the total account balance. Normally, only unsecured debts like medical bills and credit card debts – not car loans, student loans or mortgages – are eligible for debt settlement. For the debtor, debt settlement makes sense because they can avoid bankruptcy while still lowering their debt balances (sometimes by more than 50%). Creditors are often willing to settle your debts in order to avoid lengthy collections or lose repayment altogether due to bankruptcy.