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Which is the best solution to solve your debt problems?
By David Pilley on June 17, 2011

dollars-(1).jpgThere is no clear solution for every individual debt problem. Every situation is slightly different. Some people have multiple credit card debts, some have debt from student loans, and some have greatly increasing interest from multiple missed payments. The amount of debt owed, the type of debt, and available income are also different and affect which path you should choose. There are five major options from which you can choose: debt consolidation, debt settlement, debt management, bankruptcy, and self-repayment. You can ask yourself a few questions to determine which solution may be best for you.

Lower interest rate? Debt management and debt consolidation are the two best choices if you are looking for a lower interest rate. Consolidation is the joining of all your revolving credit accounts (credit cards and student loans are two examples) onto one plan. You make one payment each month involving one interest rate. With debt management, you work with a counselor to create a monthly plan of repayment. Here, your counselor may contact your creditors and ask for a percent or two drop on each of your accounts. An option to pay a lower total amount of interest is bankruptcy, but not all debts can be included on this route.

Lower principal amount? Debt settlement is the best option here. The most common result from a settlement, however, is a lump sum payment. This means you need to be able to pay it off in full when the deadline hits, or your debt problem will only get worse. Bankruptcy is another option, as most debts will be discharged, meaning you are no longer liable for the debt.

Third party fees? Every option involves third party fees except for self-repayment. With consolidation, settlement, and management, you will have a one-time representation fee plus a monthly representation fee. If you get help from a non-profit organization, you may still have fees, but certainly not as much as a company in business for the money. Bankruptcy involves filing fees plus attorney fees, and that could end up being another monthly payment plan not unlike the ones that got you in an abyss of debt in the first place.

Impact on credit score? If you don’t want your credit score to plummet, do not choose bankruptcy! Bankruptcy has the most negative effect, in some cases dropping your score by 200 points or more, and it will stay on your report longer, up to ten years. With bankruptcy, you also cannot apply for new credit for two to four years. Therefore, bankruptcy should always be seen as a last resort. With debt settlement, a late payment will have a detrimental effect on your score, appearing on your credit report up to seven years. With the other three options, you can improve your credit score over time, as long as you do not have late payments.

Will calls from collectors stop? Yes. They will stop in all five situations. Don’t stick your head in the ground like an ostrich and pretend your debt isn’t there. You know about the five major options, so choose one and see if it works for you.
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