Getting out of debt is not an easy process. While one might be frustrated and drowning in credit card debt, mortgage loans, personal loans, or student loans, it is crucial that you take the right step or you might end up with more problems that you are dealing with right now.
Is Bankruptcy an option?
If you want your debts discharged legally, bankruptcy is one option. This step will relieve you of paying your balances.
You can file for a Chapter 7 which is basically liquidation of debts. Another choice is to go the path of Chapter 13 that basically restructures your existing debts. A judge will decide on your case.
When you go for Chapter 7, it involves sale of all your assets that aren’t exempted from the ruling. This may include cars, household furnishings, among others.
Chapter 13, on the other hand, will let you keep property such as your house or car. The court will allow you to pay your debts during a certain period, usually 36 to 60 months instead of surrendering what you own.
Both Chapter 7 and Chapter 13 bankruptcy will help you get rid of any unsecured debts and stop debt collection activities, repossessions, and foreclosures.
Bankruptcy might sound an easy way out up to this point but, of course, it comes with strings attached. It will be very damaging to your credit score. A Chapter 7, for example, will be on your credit report for 10 years. A Chapter 13 will be a screaming bad record on your credit report for seven years.
What are your other options?
When managing debt and when you’ve ruled out bankruptcy as an option, you have government debt relief programs, debt consolidation, debt counseling or debt management plan as your best way out (or as your starting point).
You have to know where you’re at and determine if you have enough to meet your expenses on a monthly basis.
You can also see help through credit counseling programs accredited by the government. These government debt relief programs focus on finding the root cause of your financial woes and help you stand back up again.
The financial experts may discuss debt consolidation options with you. Another option is going through debt management plans.
Debt consolidation involves taking out a big loan that can cover for your multiple debts. The hope is to have a lower interest rate and more manageable monthly payment. You will only be paying one lender so it should be easier for you.
Debt management plans, on the other hand, does not involve getting a new line of credit. What happens is you’ll be working with a credit counselor who in turn will negotiate with lenders to help make payments easier for you through lower interest rates or lower monthly payments.
If you want to rebuild your credit, government debt relief programs such as debt management, counseling, and consolidation might be the best ways to deal with the problem. These things will not pull your credit score down as you will be making your payments again. When you explore these means to clean up your finances, you will be able to bring to current old accounts that you might have neglected the past months or years, and that can only mean good things for your credit score.
Should you file for bankruptcy or check out government debt relief programs first? Let us discuss what’s your next best step if you’re neck-deep in debt.