Are you in debt and need help getting out of it? If you’re unable to pay your debts and do not see yourself being able to do so in the next few years, five debt solutions may help you. These solutions include debt consolidation, personal loans, bankruptcy, debt management plans, and debt settlement. Each option has its own set of pros and cons, so you should carefully evaluate them before deciding on one or several that could work best for your situation. Let’s take a closer look at each solution and how it can help you get rid of your debts once and for all!
1: Debt Consolidation
Debt consolidation is a debt solution that has risen in popularity, but it’s not without risks. It involves combining all of your unsecured debts into one new loan and making single monthly payments to your creditor. Though consolidating does lower interest rates, you will still be responsible for repaying your debts, which can take up to 25 years on average. If you plan on paying off your debt quickly, consider other debt solutions instead of consolidating to save money on interest. Consolidation may also increase your credit score by reducing your overall debt-to-credit ratio. Be sure to check with potential creditors before committing so that you understand what rate they offer and how long they expect repayment to take. Keep in mind that while credit card companies are typically more flexible than banks when considering consolidation, they often charge higher interest rates as well because they know consumers are desperate for relief from their high balances. In fact, according to Federal Reserve statistics released in June 2016, 44% of consumers who use credit cards consolidate their balances. And if you have multiple loans or lines of credit with different creditors that carry high-interest rates—including personal loans—consolidation may save you even more money than lowering just one or two existing balances.
2: Debt Settlement
When it comes to debt solutions, bankruptcy is probably one of your last resort options. This solution allows you to pay off your debts over some time and maybe beneficial for anyone who owes more than $10,000 in unsecured debt (such as credit cards) or more than $11,000 in secured debt (such as a mortgage). When filing for bankruptcy it can be helpful to hire an attorney. Although bankruptcy will not result in debts being forgiven immediately, it is a smart choice if you cannot get on top of your obligations within several years. Bankruptcy results in all creditors being cut off so that they can no longer seek repayment.
Filing for bankruptcy can be stressful, but many find it to be a great debt solution. When you file for bankruptcy, all or part of your debts may be forgiven. While you’ll need to adhere to certain legal requirements once your case is filed, there are several options available and your specific situation will dictate which avenue is best for you. Keep in mind that a bankruptcy won’t affect all of your debts; typically, only credit card bills and personal loans will fall under that category. As long as your other debts don’t total more than $250,000 (excluding student loans), and they were not incurred within 60 days of filing, they should be shielded from any proceedings.
This solution will only be suitable for people who are seeking debt advice. If you are finding it difficult to pay your debts, there is a way out of your financial problems. You may want to consider going bankrupt and entering into a Personal Insolvency Arrangement (PIA). This may help you manage your debts, protect some of your assets and get back on track financially. A PIA can vary depending on what stage you are at with your debt repayments. The first type of PIA is a Disclosure Order, which allows you to maintain control over most of your assets but for them to be protected from any further claims from creditors, you must agree not to incur any new debt without consulting an Official Receiver.
5: Personal Insolvency
If you cannot pay your debts, but you want to remain in control of your assets, being declared bankrupt may not be an option. To be declared bankrupt, a court has to decide that you are not able to pay off all or part of your debts because there is no prospect of doing so within a reasonable time and it would be unfair for creditors to have their debts paid at less than full value. Two other forms of insolvency do not require a bankruptcy petition: Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). An IVA means working out a repayment plan with creditors in return for having some or all of your debt cancelled – as long as certain conditions are met.