Debt (MP) Lots of people are faced with an economic crisis which throws them into debt. Whether that debt is the result of personal or family illness, the loss of a job, or overspending, it may seem overwhelming. There’s no magic pill or formula that will get you debt relief quickly. But debt may be overcome with some perseverance and direction. Your financial situation doesn’t need to go from bad to worse. If you’ve landed here because you’re in debt crisis, you have options: Budgeting; debt relief services, like credit counseling or debt settlement from a reputable organization; debt consolidation; and/or bankruptcy.
Road Map To Debt Relief
The first step is to take charge of your financial situation. Do a realistic assessment of what money you have, take in and how much money you’re spending. Start by making a personal budget. List your revenue from all sources. Then, list your “fixed” expenses — the ones that are the same each month — like mortgage payments or rent, car payments, and insurance costs. Second, list the expenses that change, like groceries, entertainment, and clothing. Recording all your expenses, even those that seem insignificant. Track your spending patterns, find necessary expenses, and rank the remaining. The aim is to make sure you can make ends meet toward the basics: housing, food, health care, and insurance while trying relief solutions.
2. Contact Creditors
Contact your creditors now if you’re encountering difficulties making ends meet. Let them know why it’s difficult for you, and try to work out a modified payment plan that cut your payments. Don’t delay until your accounts have been turned over to debt collectors. At that time, your creditors will have given up on you.
3. Debt Relief Services
Reputable credit counseling organizations help you manage your money, develop a budget, and offer free materials and workshops. Counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your financial status, and help you develop a personalized plan to solve your money problems. A first counseling session typically lasts one hour, along with an offer of follow-up sessions.
Before you decide to do business with any debt relief services, check it out with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
If you’re considering getting help to stabilize your financial situation, do some homework first. Understand what debt relief services an organization provides, how much it costs, and how long it might take to meet the results they promised. Don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.
4. Debt Consolidation
Debt Consolidation or settlement happens when one person or company purchases all of your bad debt so that you can make one payment to them – this may let you get a lower interest rate than what you are currently paying as much as to simplify by getting just one monthly payment.
They basically are offered by for-profit companies, and involve them negotiating with your creditors to let you to pay a “settlement” to resolve your debt. Dealing with debt settlement and debt management companies can be extremely risky and could have debilitating effects on your finances. Doing your research on a company before making any commitments with save you a lot of headaches.
Bankruptcy is the legal status for a person or company in debt. It is a status that can only be granted by a state or federal court. Generally, personal bankruptcy is considered a last resort for people inundated with loans or bills. Although going bankrupt is an effective way to wipe out most or all debt obligations, there are long-lasting consequences.
If you follow the bankruptcy rules and receive a discharge — a court order will say you don’t have to repay your creditors. However, bankruptcy information (both the date of the filing and the later date of discharge) stay on your credit report for 10 years and can make it difficult to get credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.
There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. Filing fees are several hundred dollars. For more information visit the United States Courts. Attorney fees are extra and vary.
Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during three to five years, rather than surrender any property. After you make all the payments under the plan, you receive a discharge of your debts.
Chapter 7 is coined straight bankruptcy; it involves liquidating all assets that aren’t exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Part of your possessions might be sold by a court-appointed official, called a trustee, or turned over to your creditors.
Both types of bankruptcy may get cleared of unsecured debt and end foreclosures, repossessions, garnishments and utility shut-offs, as well as other collection activities. Both offer exemptions that allow you to keep certain assets, although exemption amounts vary by state. Personal bankruptcy doesn’t erase child support obligations, alimony, fines, taxes, and student loan obligations no matter how severe your debt. And, only if you have a acceptable strategy to atone for your bad debt under Chapter 13, bankruptcy usually doesn’t let you keep property once your creditor comes with an unpaid mortgage or security lien for it.