Alternative Debt Solutions

Often you can develop and follow a debt repayment plan to solve your debt problems. This involves budgeting and selling some of your assets to cover your debt over a certain period of time. If you can't afford to repay your debt, you may have to explore alternative solutions.

Debt Management

Some organizations offer debt management programs that provide professional help in solving your debt problems. This involves enlisting the aid of a counselor to review your debts and other financial detail. After the review, the counselor may try to negotiate with your creditors to obtain lower payments, lower interest rates and/or fee waivers. The counselor sets up a payment schedule that matches your budget. You make regular deposits with the debt management organization, and the organization distributes the money to your creditors.

Debt Settlement

With a debt settlement, the creditors agree to accept less than the entire amount owed as payment in full and will close the account. You may be able to pay only 25 to 50 percent of your outstanding debt to clear the entire debt. However, creditors are unlikely to agree to a debt settlement unless your account is severely delinquent. You also must pay the debt settlement amount in a lump sum. You can seek assistance from a debt settlement organization, which requires fees for its services, or you can negotiate with your creditor directly.

Borrowing

If you can obtain a loan that has a lower interest rate compared to your current debts, it may help solve your debt problems. However, if your debt does not accrue interest, an interest-accruing loan may make your problems worse. For example, medical bills don't usually accrue interest. If you are not certain you can pay off the new loan, you should not collateralize your assets because you may end up losing them.

Bankruptcy

Bankruptcy has serious repercussions, and you should only consider it as a last resort. If you file a bankruptcy, the court may help make your debt easier to repay or even eliminate some of your debt. There are two common forms of bankruptcy for individuals -- Chapter 7, which involves liquidation of your assets to pay off creditors, and Chapter 13, which produces a repayment plan to pay off debts over three or five years. You may want to consult an attorney before filing a bankruptcy, so you fully understand what the process entails. A bankruptcy stays on your credit record for up to 10 years, making it difficult for you to obtain loans in that period.