- Your options for debt relief depend on the extent of your assets and liabilities. If you have good credit and have simply begun to feel that your payments are unmanageable, then consolidating your debt may be an option. Consolidating debt involves taking out a loan to repay multiple other debts. Debt consolidation could lower your interest owed or even lower your monthly payments. However, if you lower your monthly payments, you will usually make your payment period longer and pay more money in interest over the long run.
If you have too much debt to be helped by consolidation, or if you have poor credit, then you have several other options available. You can work with a credit counseling agency to help you negotiate with creditors and manage your debt, potentially settling your debt for less than what is owed. You could also try to negotiate with creditors to settle your debt for less.
As a last resort, you may be able to get some debts discharged in bankruptcy court. However, student loan debt and back taxes typically cannot be discharged, and even some credit card debt may have to be paid back, depending upon your assets and liabilities. - If you decide to negotiate your debt, you can do so with the help of a credit counselor. When selecting a credit counselor, take care to avoid falling victim to an unscrupulous debt settlement company. Select a company that is a not-for-profit with 503(c)(3) certification. The company should be certified by a national agency, such as the National Foundation for Credit Counseling, or a third party accrediting body, such as The Council on Accreditation. Your counselor should also be a certified credit counselor. Understand the fees upfront and the company should not charge for writing debt management plans. Reliable companies usually offer classes in money management, debt and budgeting. Unreliable companies usually make promises that sound too good to be true, such as removing negatives from a credit report.
Finally, ensure that your payments go toward paying off your debt. Some unscrupulous companies keep the first payment, or take a commission from each payment made. If you opt not to work with a credit counseling agency, you can settle debt yourself by negotiating directly with creditors. Ensure that you get everything in writing, including the detailed terms of a settlement, before sending money to creditors. Settling debts for less than the amount owed hurts your credit, but not as much as bankruptcy. You may also be taxed on the forgiven portion of the debt as income. - Bankruptcy should be considered a last resort. It remains on your credit report for up to 10 years and can make it difficult to obtain unsecured credit for several years following your discharge from bankruptcy. You should not file bankruptcy without the guidance of an attorney, as there are specific requirements for notifying creditors and getting debts discharged. Depending on your assets and the type of debt you have, bankruptcy may result in all of your debt being discharged. However, if you have sufficient assets, you may only be able to have your debt reduced, not discharged, and you will have to comply with a court-ordered payment plan. Student loan debt and some back taxes are not usually discharged in bankruptcy, except in such unusual situations as total disability or severe financial hardship likely to be permanent.
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