Solid Advice for Those Deeply in Debt

Many people carry debt through their mortgage, auto loan, student loan or credit cards. A job loss, sudden illness or unexpected family emergency can leave a consumer unable to pay down their debts. After time, the consumer's debt may become overwhelming. Fortunately, consumers can pay down their debts no matter how large through payment plans, credit counseling, debt consolidation loans or bankruptcy.

Self-Help

Consumers can help themselves get out of debt by contacting their debtors directly and asking for a payment plan. Many creditors and banks will work directly with consumers who are having difficulty paying down their debt or making their monthly payments on time. First, you should create a monthly budget to determine how much you can afford to pay the company each month. Then, when you contact the creditor, inform them of how much you can pay and on what date you can pay it each month.

Credit Counseling

Credit counseling services help people who are deeply in debt and unable to create a recovery plan themselves. A credit counseling service will review your debts and create a repayment plan. After you agree to this debt management plan, you pay the counseling service directly each month and the counseling service pays your creditors on your behalf. These services can help people resolve their debts, but consumers should research any company before agreeing to do business with them. Some counseling services charge large fees or fail to make timely payments, which will hurt your credit score in the long run.

Home Equity and Debt Consolidation Loans

Home equity loans and debt consolidation loans allow people to receive a lump sum to pay off their debts and to consolidate several debt payments into one monthly payment. With a home equity loan, homeowners can typically borrow up to the valued equity in their home and receive loan terms from five to 15 years, according to Bankrate. Debt consolidation loans are personal loans and the borrower does not need to own a home to use as collateral. These loan types offer a quick way to pay off debt immediately, but are only a good solution for people who can manage the loan payment and avoid going into debt in the future.

Bankruptcy

Consumers have two options for bankruptcy: Chapter 7 and Chapter 13. With Chapter 7 bankruptcy, consumers can give up their assets, such as vehicles, property or personal possessions, as a repayment of their debts. With Chapter 13 bankruptcy, consumers are given a repayment plan for handling their debts, typically lasting three to five years, according to Bankrate. During this time frame, creditors must stop foreclosure or collection actions against the consumer. Bankruptcy will help consumers absolve their debt, but should be considered a last resort as bankruptcy has a serious negative effect on the consumer's credit score. Chapter 7 bankruptcy appears on a credit report for 10 years and Chapter 13 appears for seven years, according to Bankrate. During that time, the consumer will have difficulty opening new credit cards, obtaining loans or purchasing a home.