If sky-high debts have you feeling over your head, there may be a light at the end of your tunnel. Rather than struggle to make your minimum payments or stay current on your mortgage, consider utilizing some of the legal tools available to help you manage your financial responsibilities.
Credit Counseling
Credit counseling services can help you manage your debt and develop a budget that you can abide by. Debt counselors will examine your spending habits and educate you on credit, budgeting and proper debt management. Check with your local bank or credit union for free or low-cost debt counseling programs. You may also find help through a local university, military base, consumer protection agency or other nonprofit organizations.
Mortgages
If your home mortgage debt is responsible for your financial woes, you may be able to work with your lender to make your mortgage payments more affordable. President Obama's Making Home Affordable Program allows qualifying home owners to modify their original loan agreements by either lowering their interest payments, extending loan terms or negotiating other terms favorable to the home owner. The U.S. Department of Housing and Urban Development suggests speaking with a free or low-cost HUD-approved housing counselor to explore your options and effectively manage your mortgage debt without facing foreclosure.
Consolidation
By consolidating your debts, you blend all of your accounts into one balance, allowing you to pay only one payment each month and save money on interest. If you have a home with equity in it, you may be able to establish a home equity loan to pay off your debts. A home equity loan uses your home as collateral in case you default on your loan, but you will enjoy a low interest rate. Additionally, you can deduct the interest you pay on your home equity loan on your annual federal income taxes.
Debt Negotiation
If you carry high credit card balances or other unsecured debt, you may be able to successfully negotiate your balances by 50 percent or more. There are several third-party companies that will negotiate with your lenders on your behalf. The process is legal, but carries no guarantees of success, and you could end up paying money out-of-your pocket. The Federal Trade Commission suggests thoroughly investigating your third-party negotiation company before using its services. Check with the Better Business Bureau and your state's Attorney General for complaints.
Bankruptcy
As a last resort, you may want to consider filing personal bankruptcy to manage your debt. There are no minimum debt thresholds to qualify for bankruptcy, though you must pass a means test to qualify for chapter 7 bankruptcy. Chapter 7 bankruptcy wipes out most of your debts with no obligation to you, while chapter 13 arranges a three- to five-year debt repayment plan that you can afford. Regardless of which form of bankruptcy you file for, the effects are long-lasting and can damage your ability to obtain credit in the future.
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