How to Choose the Best Debt Management Program For You?
When you are financially unstable, it is great to know that there are options out there but how do you know if you are making the right decision? You constantly hear advertisements on the radio about reducing your debt through a debt settlement company but you have no idea if that is best for you and what company is the best to help you with your debt. This is why you must do your research.
There are a number of different options to manage your debt such as debt consolidation, debt settlement and bankruptcy. However, you must meet with a trusted debt advisor to understand which of these options is best for you and your specific situation because every situation is different.
Below is a quick overview of what each plan does to manage debt:
- Debt Consolidation: Paying your balance in full but a Credit Counselor negotiates lower interest rates on your cards so that you make one payment to your management plan and they disperse that payment amongst all of your creditors based on the newly negotiated interest rate so that you can make a plan to be out of debt in about 6 years. A lot of people think this will not adversely affect their credit at all but working with Credit Counseling Agency can affect your credit even though you are paying the balance in full.
- Debt Settlement: You work with a firm, debt lawyer or debt settlement company that negotiates principal balance reductions in your debt at 0% interest so that you can be out of debt in 3 years or less. This is a much better financial option than debt consolidation and gets you out of debt faster so that you can start to rebuild faster; however, it does impact your credit initially if you are current on your payments.
- Bankruptcy: If you are able to file a Chapter 7 bankruptcy (depending on which state you reside, assets, your income and family size) then this may be the cheapest route out of your debt because it is a complete discharge of your debt; however, you must meet with a trusted attorney to understand if this is an option and the consequences you will have. If you must file a Chapter 13 bankruptcy, which is a reorganization of debt followed by 3-5 years of payments, it is likely that there may be a better option for you since Chapter 13 prohibits you from bettering your income while in the bankruptcy plan because your payments will just increase.
One of the most important things to keep in mind is that you sit down with someone in your state of residence that can speak to you about your debt options. There are advertisements everywhere for debt management programs that help people across the country but are not specific to your state. This is important because there are different laws that apply to your debt situation in each and every state. You want to be able to speak with a person that is knowledgeable about bankruptcy laws, creditor and consumer rights, and the civil courts in your state, as all of these issues should be a part of your decision making process.
When you sit down with your trusted counselor or debt attorney in your specific state, you should be prepared to show them your full credit report if your debt is past due, and if you are current on your payments, your current account statements. Make sure you know what each debt is for – student loans, credit card, mortgage, etc. Knowing what type of debt it is helps your trusted resource give you the best debt management plan for your situation.
Once your trusted resource explains and advises you on the best plan of attack and this plan is not to file bankruptcy, they will send you a proposal, in writing, that will outline a planned payment scheduled used to reduce and/or manage your debt.
You will then want to forward all future mail and phone calls to your trusted resource and immediately stop the use of all credit cards and credit lines.
Do not hesitate to contact your debt management counselor or attorney throughout the process so that you can be involved in decision making and can appropriately budget in order to get yourself out of debt as planned or even sooner.