All the debts and the terrible feeling of hopelessness makes you cringe like there is no other options at all. Well let me inform you that there are various financial programs and services designed for people like you. The first thing to do is assess your current financial status and evaluate the pros and cons of each alternative discussed below. Then, you will be smarter to decide which one is best for you.

Debt Settlement

Also referred to as “Debt Negotiation”. An aggressive technique in reducing debts. It is an alternative for people who are considering bankruptcy or those with a severe amount of debt.

Advantages:

• Gives lower monthly payment since total debt is lowered.


• Credit counseling companies will do all the negotiating to all your creditors.


• Provides shortest time to get out of debt without filing for bankruptcy.

• Payment of taxes as IRS considers the forgiven debt as taxable income.


• Can pose harm on the debtor’s credit rating.

Bankruptcy

Recommended as the last resort since its effects are long-term and extensive. The most common personal bankruptcy is Chapter 7 and Chapter 13.

Advantages:

• Possible to exercise even if you have no assets.


• Offers a fresh beginning to people who can’t fulfill their debts.


• Grants debtors to keep some assets.


• After completing bankruptcy plan and receiving a discharge, debtors do not have to pay certain liabilities.

• Put a negative effect on your credit score for 10 years.


• Can seriously affect future credit applications.

Consolidation

Debts are combined together into a single amount. The lender pays your debt and you make the monthly payments to him. The monthly payment is probably 32 percent lower than preceding payments.

Advantages:

• Offers lower monthly payments.


• Provides additional time to pay debts.


• May grant lower interest.


• Managing of debts is easier compared to multiple payments.

• Total amount of debt upon consolidations is not reduced.


• Commitment to discontinue using credit cards.

Credit Counseling

It is making use of the services of counseling organizations, most of it are nonprofit, to assist you with your financial dilemma. Some credit counseling institution can even help you exercise payment arrangements with your creditors.

Advantages:

• Provides assistance on how to manage your finances.


• Offers free educational resources and seminars.


• Certified credit counselors can assist you in outlining a personalized plan to get you out of debt.

• Some credit counseling organizations charge high fees for enrolling in their credit counseling programs.


• Disclosure of personal financial details such as credit card numbers and balances.

Home Equity Loan

This approach requires you to acquire a loan or mortgage on your home equity. It could minimize your credit cost by consolidating all your debts through a home equity credit plan.

Advantages:

• May provide some tax advantages not available with other credit programs.


• Majority of home equity loans provide encouraging interest rate.


• All outstanding debts are paid off.

• The debtor should have a home.


• Your home serves as collateral.


• Failure to make regular payments could make you lose your home.