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Your Available Options
Option 1 -
Debt Settlement
Debt Settlement
is the quickest and least costly option to get out of debt
without filing bankruptcy, but having said that it is
still one of the biggest decisions to put forward.
Giving the
individual or the family to take charge of the program and
control their own destiny (unlike bankruptcy, where the
courts decide everything). Client dictates the program
duration. We understand the nervousness of change…our
professionals will make every client feel like family.
Option 2 - The
New Bankruptcy Law
Prior rules had
people who filed under Chapter 13 had to dedicate all of
their disposable income -- what they had left after paying
their actual living expenses -- to their repayment plan.
Unfortunately the new law requires you to cover all your
bases: Although Chapter 13 filers still have to hand over
all of their disposable income, they have to calculate their
disposable income using allowed expense amounts dictated by
the IRS -- not their actual expenses -- if their income is
higher than the median in their state these expenses are
often lower than actual costs.
What's worse,
these permitted expense amounts must be subtracted not from
the filer's actual earnings each month, but from the filer's
average income during the six months before filing. This
means that debtors may be obligatory to pay a much larger
amount of "disposable income" into their plan than they
actually have to spare every month -- which, in turn, means
that many more Chapter 13 plans will fail.
Under the new law,
you must value your property at what it would cost to replace it from a retail
vendor, taking into account the property's age and condition. This requirement
is sure to rise up the value of property, which means more debtors stand to have
their property taken and sold by the trustee.
Furthermore,
the financial impact is severe; a bankruptcy will stay on your credit
report for 10 years. Every time you apply for employment,
credit, whether it is a home, a car, a lease, or insurance,
you will be impacted. The long-term effect of higher rates
many times greatly outweighs the shorter-term impact of
filing bankruptcy. Most people do not realize that
bankruptcy can stay on their court records for over 20 years
- which means it can follow someone for the rest of their
life. If you apply for a job, a loan, rent an apartment, or
even insurance your bankruptcy filing is easily uncovered.
Not all debts
can be discharged through Bankruptcy,
Please review this
list:
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Debts
resulting from fraud
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Alimony
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Fines from
traffic tickets or debts that result from criminal
negligence
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Debts from
willful or malicious injury to another person or their
property
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Child
Support
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Credit card,
personal loans, and installment purchases made within 40
days of filing.
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Student
Loans (Currently, student loans cannot be discharged
unless the individual passes an undue hardship test. The
individual has to prove that they made good faith
efforts to repay the loan and prove that they cannot
maintain a minimal standard of living if you were forced
to repay the loan)
Option 3 - Debt Management
Many
universities, military bases, credit unions and housing
authorities operate nonprofit financial counseling programs.
A number of them charge a fee for their services. Creditors
may be willing to accept reduced payments if you are working
with a reputable program to create a debt repayment plan.
However, credit
counseling organizations have faced scrutiny because of
their misuse as a "nonprofit" organization. Because an
organization says it is a "non profit," there is no
guarantee that the services provided are free, affordable,
or even legitimate.
Debt management
companies and Consumer Credit Counselors get paid as long as
your are enrolled in their program, so it is in there best
interest not to get you debt free the quickest. They want to
force consumers to pay as much money as possible to your
creditors. Certain, they may help lower your interest rate a
few points, or eliminate a late payment or two, but the
credit card companies are pleased to do this when they know
you are going to keep making payments that America Debt
Resolutions could have negotiated away for pennies on the
dollar. After all is said and done many lending institutions
consider this management as a Chapter 13 and also on your
credit for 10 years.
The fact is that
Consumer Credit Counseling companies work for the benefit of
the creditors and banks.
Option 4 - Debt
Consolidation
Also known as a
consolidation loan, Debt Consolidation is the substitute of
several loans with a single loan, often with a lower monthly
payment and a longer repayment period.
The FTC defines
Debt Consolidation as: You may be able to lower your cost of
credit by consolidating your debt through a second mortgage
or a home equity line of credit. Remember that these loans
require you to put up your home as collateral. If you can't
make the payments - or if your payments are late - you could
lose your home.
What's more, the
costs of consolidation loans can add up. In addition to
interest on the loans, you may have to pay "points," with
one point equal to one percent of the amount you borrow.
Still, these loans may provide certain tax advantages that
are not available with other kinds of credit.
Source: Federal Trade Commission, "Facts for Consumers"
Therefore, by
consolidating your unsecured debt with a home equity loan,
you run the risk of losing your hard earned assets if you
default on your payments. You will still pay the full
balances on your unsecured debt and must have a low
debt-to-income ratio to qualify.
Option
5 - Hope Things Get Better and do nothing
This is the
easiest solution for all, but it is not sensible one. The
only way one can change a situation is by acting upon the
problem.
When you are in
a struggle to make minimum payments on your unsecured debt,
you must look at all your options to determine which option
is going to free up your cash flow problem.
Most of us are
hopeful by nature, and since it's quite normal to experience
financial ups and downs in life, many people just ignore the
problem and hope things get better down the road.
Unfortunately, when you are buried under excessive personal
debt, things will rarely get better on its own.
If you're barely
able to pay the minimums each month, that's a sure sign
you're already in danger. And if you've borrowed from one
card to make payments on another, that's a recipe for
financial cancer. The problem here is that a household
budget that's stretched to the limit like this leaves no
room for the unexpected. One little bump in the road and
you've set foot on the slippery slope toward financial ruin.
Once you start missing payments on your credit card
obligations, those 7.9% interest rates that seemed so
attractive suddenly jump to 22%, 25%, even 30%.
Procrastination
adds fuel to the fire. The problem will not get better on
its own, and you cannot expect sympathy or understanding
from your creditors. It really doesn't matter if you've been
a devoted customer and made your payments on time for 20
years. Once you start falling behind, you'll learn that the
banks are not sympathetic when clients are down. They are in
business to make profits for their shareholders, and most of
those profits come from people trapped in the cycle of
nonstop minimum payments.
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