Help With Overwhelming Debt

Individuals swamped with debt find themselves in an indefensible situation. Hit with penalty fees for late payments and punitive interest rates, these debtors often find themselves making payments that merely service the interest on the debtor, but never attack the principal. As people slide deeper into debt, they may fear that they will lose many of the things they have worked hard to achieve in life. There are a number of options for overwhelmed debtors.

Debt Counseling

One of the simplest options for debtors is to receive some form of counseling. There are a number of nonprofit organizations that provide free or low-cost credit counseling to individuals whose bills have become unmanageable. However, debtors should exercise caution in who they seek for advice. Some counselors charge high fees, while others are in fact financed in part by credit card companies, meaning they may not have the debtor's best interests at heart.

Debt Consolidation

Some debtors who must cut a number of checks each month will sometimes choose to approach a lender about consolidating their debt. When debts are consolidated, it means that a lender will issue the debtor a new loan in exchange for buying the debtor's old debts and paying them off. In some cases, this will increase the debtor's overall debt load, but may reduce the size of their monthly payments.

Debt Settlement

Some debtors can directly negotiate with their creditors to receive a reduction in the amount of money they owe. Many creditors are willing to accept partial payment of a debt for several reasons. First, the cost of attempting to collect on the debt may exceed the amount of money the creditor expects to extract from the debtor. Secondly, a creditor may fear the debtor will declare bankruptcy and have some of his debts dismissed. Debtors should be aware that settling a debt for partial payment may hurt his credit rating.

Bankruptcy

The last resort for debtors who have unmanageable debt is to declare bankruptcy. A bankruptcy declaration is a legal declaration the debtor does not have the funds necessary to pay the money he owes to his creditors. These declarations come in two types--Chapter 7 and Chapter 13. The downside to declaring bankruptcy is, in the case of Chapter 7, the person may have to surrender some personal assets, and, for both types, his credit rating will be damaged.