Debt is a useful financial tool to bridge gaps in income or to make large purchases such as cars and houses. However, for many people, debt can become an overwhelming burden that threatens their ability to make ends meet. There are legitimate ways to reduce or eliminate debts that allow you to bring your head back above water.
Debt Settlement
You can contact creditors by phone or in writing to negotiate a reduction in the balance, interest or fees in exchange for a lump-sum payment or steady monthly payments. If you reach an agreement over the phone, request it in writing before you send any payment to ensure the creditor honors your agreement. You can also hire a debt settlement company to negotiate with creditors on your behalf to reduce your interest and remove fees. Debt settlement companies have an advantage because they deal with creditors all the time and know the laws and professional techniques that can get you the lowest payment.
Debt Consolidation
You can consolidate your debts into one loan to simplify your finances and lower your interest rate. The most common types of debt consolidation are home equity loans and home equity lines of credit. Both require you to offer a portion of your home's equity as collateral for the loan. Some lenders offer debt consolidation loans without collateral, but you will pay more in interest. Debt consolidation is not a good idea if the interest rate of the consolidation loan is higher than most of your other debts or if the terms are longer, because you will end up paying more in interest over the life of the loan.
Bankruptcy
Bankruptcy is often the last resort for people who need debt relief but have not been successful with other avenues. Most people file Chapter 7 bankruptcy, which allows them to legally get rid of, or discharge, most debts. People with income higher than the median in their state must file Chapter 13 and pay off as much debt as possible in a three- to five-year time frame. The courts will discharge debts remaining after that time. Both types of bankruptcy offer a fresh financial start but will stay on your credit report for up to 10 years. This can make it difficult to get mortgage loans or other credit for a few years as you rebuild your credit. You can file bankruptcy by yourself, but you will have a better chance of successfully getting rid of your debt with an attorney's help.
Determining if a Debt Service Provider is Legitimate
While many debt relief providers genuinely want to help people get out of debt, unscrupulous people also claim to offer debt relief services but will not deliver on promises after collecting your money. Legitimate debt service providers will hold a valid license in your state, and the staff should have training and certification in debt management, credit counseling or bankruptcy law. Providers should answer all your questions and provide detailed literature about their services. An authentic debt settlement company will also tell you all fees and other charges up front, but will not take your money until it has reached an agreement with your creditors. Legitimate debt consolidation companies will tell you all the terms of the loan and provide you with truth-in-lending statements and other legally required literature.
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