Debt repayment is a choice you have to make at some point to save your credit score and be free from debts. The more your debts accumulate, the more the interests and taxes accumulate as well. There are different debt repayment options to choose from. Your choice will depend on your financial situation at the moment. Check out the six debt repayment options that can help you clear your debts.
01 Settle the Debt on Your Own | Debt Repayment Options
You can decide to repay your debts on your own without involving a settlement company or third party. This option involves careful planning and discipline. First, you may have to call your creditors and lenders to work out a payment schedule or to ask for a lower interest rate. Once you reach an agreement, it’s your responsibility to ensure the payment plan is followed to the latter. Your debt repayment plan should include both your secured and unsecured debts.
02 Use Consumer Credit Counseling | Debt Repayment Options
Resorting to Consumer Credit Counseling might be your best option. A credit counseling agency will typically work within your budget to come up with an affordable monthly payment for all your unsecured debt. The credit counseling agency will put you on a debt management plan (DMP) that usually includes a lower minimum payment for each of your creditors and a lower interest rate. Credit counseling usually takes about three to five years. You are not allowed to use your credit cards while you’re on a DMP. Though your credit report will be updated to show that you’re in credit counseling, it won’t hurt your credit score.
03 Debt Consolidation | Debt Repayment Options
Debt consolidation involves combining all your debts into a single monthly payment. Some types of debt consolidation programs involve a new debt consolidation loan that’s used to pay off your unsecured debt. This will require you to have a good enough credit score to get a new loan. Other programs operate more like consumer credit counseling by combining your monthly payment.
04 Debt Settlement
You can also decide to use a debt settlement company to repay your debts. This can be quite helpful. When successful, debt settlement can lower your total debt by up to 40% to 60%. You pay a monthly fee to a debt settlement company, which negotiates a lump sum payment that’s less than the full amount you owe. When a settlement amount has been reached, the debt settlement firm uses the money you’ve been sending to pay the settlement. Debt settlement requires you to be behind on your payments. There’s no guarantee your creditors and debt collectors will accept the settlement offer. You may or may not receive a refund if the settlement isn’t successful.
05 Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a way to receive total relief for all or some of your unsecured debts. You’ll have to pass a means test and go through credit counseling to show that you don’t make enough money to pay off your debt on your own. Depending on your state’s law, you may have to give up your assets to pay off some of your debt. This includes your home or car if you have equity. Most of your unsecured debt can be wiped out or discharged, in bankruptcy. However, child support, tax debts, and student loans can’t be bankrupt.
06 Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a type of bankruptcy that allows you to repay your debts within three to five years. Any debt that’s left after your Chapter 13 bankruptcy is complete will be discharged. You might file Chapter 13 bankruptcy when you make too much money to file Chapter 7 or when you have assets that you want to keep. You must also go through credit counseling to file for Chapter 13 bankruptcy. In Chapter 13, you have to pay child support and alimony, certain tax debts, any wages owed to employees, your regular house and car payments, and any back payments you have on your house and car.