There is no surefire plan that works for everyone when it comes to managing debt, but there are similarities that each individual case will share. The debt management market has many options for people to choose from to deal with their debt load, but it all depends on what will work best for that person. Listed below are some debt management options you can choose from to make a stand against your debt load, and by comparing them side-by-side you’ll be able to decide what’s best for your personal debt:
Debt Management Plan: A DMP is one of the most common forms of debt management, and it involves gathering all of your unsecured debt and striking a deal with your creditors. There are non-profit and fee-charging debt consolidation services and each offer different advantages, but they usually revolve around lowering your monthly payments and freezing the interest on your accounts. By eliminating the interest you’ll have one final debt load amount when you begin your DMP, and it will decrease with every payment you make. Instead of paying your numerous creditors at different times of the month, you’ll only have to send one payment of a preset amount to your DMP company and they’ll distribute it for you.
Debt Reduction: Debt Reduction is basically a savings account to pay off however much of your debt load you wish to eliminate. Your debt reduction company will determine how much you can afford to pay them each month, and they’ll also contact your creditors to inform them once your savings have reached a reasonable amount. Your debt reduction company will then make an offer, and your creditors will more than likely accept it and that account will be paid in full. You will most likely have to continue payments to your creditor throughout the savings process, however you will almost certainly save money in the end.
Debt settlement: If your load debt has become too much to handle and you’ve defaulted on a few lines of credit, your creditors will most likely offer you a debt settlement. A debt settlement is when you’re at least three months behind in your payments, and in fear of you not paying any of the balance your creditor will offer you a portion of your total balance. In most cases they will eliminate as much as half and offer a payment schedule to fit your needs. You may think this is a positive way to deal with your load debt, but debt settlement will remain as a negative transaction on your credit report years afterward.
Bankruptcy: If there is no other option, the most common forms of bankruptcy you can file are Chapter 7 and Chapter 13. In Chapter 7, you will surrender all of your assets to cover as much of the load debt you’re claiming you cannot repay. When you file Chapter 13, you are allowed to keep your possessions but must have solid income and develop a payment plan with the government which typically lasts three to five years. Filing bankruptcy will affect your ability to receive a new line of credit for almost a decade, so it should absolutely be a last resort.
In the long run, a good debt consolidation program may be the answer for your needs. Again, it's up to you to do the legwork and decide what's best for your personal financial situation.
