Credit counseling services can help reduce the total amount of debt you owe. There are other debt reduction options you can choose to perform yourself. If you are overwhelmed by your debt or you simply want to get out of debt as quickly as possible, you should consider all options before decising on a course of action.
Credit Counseling
A credit counseling service works with your creditors on your behalf to negotiate lower interest rates and reduce the amount you need to pay to eliminate your debt obligations. These services, which typically require a fee, also help you plan a monthly budget and teach you how to manage your finances more effectively. If you use a credit counseling service, it will be noted on your credit report. Before choosing a credit counseling service, research the company to make sure it is legitimate and has established a favorable reputation.
Debt Settlement
If you are behind on your monthly payments, you can attempt to negotiate a settlement with your credit card company. Generally, you must offer to pay between 20 percent and 75 percent of the amount you owe before the creditor will consider accepting the settlement, according to the MSN Money website. Do not submit the payment until you have received a statement in writing that the payment will count as settlement in full. Any debt that is forgiven is taxable at the end of the year. Your debts will be shown as settled on your credit report and may affect your credit score. Any previous delinquiencies will remain on your credit report.
Debt Payment Plan
Another way to reduce your debt is to pay it off as part of a structured plan. Establish a debt payment plan by listing your debts in order of highest interest rate to lowest rate. Pay the minimum required amounts on all of your debts, and apply any extra money to the highest interest debt on your list. Extra money can be obtained through more austere budgeting or by adding an income source, such as a second job. This option does not have a negative affect on your credit score.
Bankruptcy
Bankruptcy can reduce the amount of debt you must pay, but this typically is a last resort. This does have a negative effect on your credit score and may make it difficult to purchase a home or borrow any additional money for several years. There are strict rules surrounding bankruptcy, and you should consider contacting a bankruptcy attorney to learn more about the procedures and rules of bankruptcy. Student loan debt and several other types of debt are not included in your bankruptcy.
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