If you ever find yourself asking “How do I get rid of debt and restore my finances?” and cannot find a way to balance the budget yourself, then it is time for you to begin to look for debt help. The different options of debt help include credit counseling, debt settlement, and debt consolidation. Read the following detailed explanations to see which option is the best for you.
Credit counseling
It may be time for you to seek for a credit counselor if you find yourself in any of the following 14 situations:
Your credit card balance is increasing, but income is decreasing.
You only pay the minimum payments, or not even the minimum amount.
You require cash advances from new credit cards to help you stay on top of your bills.
The number of credit cards you own is more than the number of poker chips a poker player has.
You are at or close to all your credit card limits.
There’s more money going out than coming in.
You need to work extra hours to stay on top of your bills.
You reject knowing how much you owe and does not know the actual amount.
You receive phone calls and letters about your delinquent accounts.
The purpose of using credit cards is to help you survive, and not for convenience.
You use credit cards to buy necessity items, such as food and gas.
You use your old savings or IRA to pay for the bills.
You plan to sign up for every credit card that sends you an unsolicited offer.
You lost or about to lose your job, and is worried about how to pay back your bills.
There is no specific number of situations you must be in before you look for credit counseling help. You could be in any of the above 14 situations and still be able to deal with it on your own.
The key word is trend. If you have a trend of spending outlandishly, or only paying the monthly payments, you should start to be more attentive because you are heading towards trouble. According to the vice-president of sales and marketing for Money Management International: “the best time to seek credit counseling is before all the extreme warning signs crop up.” Furthermore, before you go to a credit counselor, you should find out how much money you have saved, how much you owe, how much is your income and etc.
Debt Settlement Debt settlement would be the best option for you if you have:
Secured loans spreading out among different creditors, and
More than $10,000 unsecured debt.
Debt settlement companies could help you to eliminate at least 50% of your debt. You should search for the best agencies at http://www.debtreliefemergency.com/
Note:The success rate of debt settlement plans is less than 24%.
Debt Consolidation Debt Consolidation would be the best choice for you if your loan is less than $10,000. This is because you can combine the unsecured loan with your secured debt in order to meet the requirements for the single low monthly payment. Furthermore, you should also consider debt consolidation if you find yourself in any of the following situations:
It is hard for you to manage multiple bill payments,
You are unable to stay current on your bill payments,
You want to replace all your bills into one easy monthly payment,
You wish to save money after making monthly bill payments, and
You are unable to handle multiple creditors at the same time.
Note:The success rate of debt consolidation is less than 40%.
Bankruptcy Declaring a bankruptcy would be suitable for you if you are in a state that has homestead protection. Some states, such as Arkansas, Iowa, and Texas, even provide unlimited homestead protections. The success rate of resolving debts by declaring bankruptcy is almost 90%. However, keep in mind that your credit score will be severely lowered for the next 7-10 years.
Chapter 7: This is for people (in debt) that does not earn more than the state median income, and cannot pay back 25% of their “non-priority unsecured debt.” This type of bankruptcy can eventually cancel your debt, however you may have to let go of your property. You must see a credit counselor six months before your bankruptcy application, and take money management classes before a discharge.
Chapter 13: This is for people (in debt) that does earn more than the state median income, and can pay back 25% of their “non-priority unsecured debt.” The goal of this type of bankruptcy is to help you set up a repayment plan that would protect you from any foreclosures, garnishments, levies, and etc. You must see a credit counselor six months before your bankruptcy application, and take money management classes before the court issues any final orders. This type of bankruptcy is more suitable for people who are behind on secured loan payments, such as mortgages and car loans, as well as people who have non-exempt property.
For more details, see our section on bankruptcy types.
In general, before you decide on obtaining debt help, you should acknowledge the cause of your debt. Then find the most suitable option for yourself. Commit yourself and stay out of debt!
