Debt is a problem with many potential solutions, and one of them is not necessarily the best option for everyone. When you look at ways to handle your debt, you have to evaluate how they will affect your credit and how quickly they will help you get out of debt.
Managing Your Debt With a Plan
One option that many people turn to when facing a large amount of debt is a debt management plan. With a debt management plan, you work with a credit counseling company. The credit counseling company negotiates lower interest rates with your creditors on your behalf. Then you make a monthly payment to the credit counseling service, and it pays all of your creditors for you. The advantage of this system is that you can save a substantial amount of money on interest, but it does take some time. It also should not negatively affect your credit score.
Negotiating Your Debt Away
Another alternative to consider is negotiating your debt away. This is also referred to as debt settlement, and it is a way to pay less than the full amount you actually owe creditors. You can negotiate the settlement by yourself or you can work with a debt settlement agency. With this process, you agree to pay the creditor a lump sum in exchange for closing out your account and forgiving the rest of the debt. This will hurt your credit score, but it helps you get out of debt very quickly.
Roll Your Debt Away
Some people use an approach called the debt snowball to get rid of debt. With this approach, you pay as much money as you can on your smallest debt account and then pay the minimum payment on all of your other accounts. This helps you pay off your smallest account first. Then you move onto the next account and put as much money as you can on it. This allows you to pay off your accounts and create momentum as if a snowball was rolling down a hill.
Have Your Debt Discharged
When you are desperate to get out of debt, another option that you may want to turn to is bankruptcy. With bankruptcy, you can have most of your debts discharged immediately. When you file for bankruptcy, your creditors can no longer come after you to try to collect the money from you. Bankruptcy will devastate your credit score, but it will also get you out of debt without actually having to repay any of it.
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