Getting out of Debt
1. Getting ready
Debt consolidation
Groups all your existing debts into a new loan to steam-line payments - you'll pay one bill monthly. This can lower your monthly payment and your interest rates.
Debt Management - Offered by companies or non-profit groups that helps you negotiate a new payment plan with your current creditors. So unlike debt consolidation, you still have the same debts (with the same balances) but you negotiate for lower interest rates and, if necessary, lower monthly payments. You will have to stop using credit cards (?) for the duration of the program, which will hurt your credit score.
Debt Settlement - With debt settlement, you are telling your creditors “Sorry, I can’t pay the entire amount I owe, but I can pay a fraction of it to you right now if you’ll cancel the debt.”Debt settlement will hurt your credit score pretty significantly. It’s not something you should do before considering other options. However, for some people, it will be the best option
Do it yourself - Why would I try to settle my debts on my own when I could get help from a debt collection company?
When doing it yourself
Bankruptcy
Chapter 7 Bankruptcy: The most common form of bankruptcy, also known as the “liquidation bankruptcy.” Although many people mistakenly believe you have to lose all your assets in a Chapter 7 bankruptcy, the reality is that you get to keep any assets that are covered by the exemption law in your state.
Chapter 13 Bankruptcy: Also known as a “reorganization bankruptcy.” You file a “repayment proposal” that outlines how you will pay off some of your debts over a period of 3-5 years. How much you need to pay each month will depend on factors like your income, expenses, kinds of debt, etc. In some cases, Chapter 13 can help people save their car or home by giving them 3-5 years to get caught up on their payments toward those debts.
Sources: http://blog.readyforzero.com/ways-to-get-out-of-debt/#.VmUIbr8-899
http://www.investopedia.com/articles/pf/08/debt-management.asp#ixzz3tgqsZkhC
https://www.credit.com/debt/get-out-of-debt/
- Gather your most recent statements for all loans and credit cards.
- Get your credit report at annualcreditreport.com to check them for accuracy and to identify all debts.
- Check the National Student Data System to gather all student loan information.
- Make a list of all your debts: name of creditor, interest rate, balance, minimum monthly payment.
- Also list the payments for each debt, as found on credit card statements.
- Remember to include loans not listed on your credit reports (family loans, medical bills)
- Based on your credit, you may qualify for much better interest rates on credit cards.
- Check out student loan consolidation and Income-based Repayment at StudentLoans.gov.
- Call your card issuers to ask for lower rates
- Consider a consolidation loan and/or balance transfers to pay off high-rate credit cards.
- Find out if you can refinance a high rate auto-loan
- Total the pay-off amount for all your credit cards.
- Add the monthly payments for all other debts.
- Write down the result: Your Total Monthly Payment.
- Determine if you can afford to pay the Total Monthly Payment until your debt is paid off.
- If not doable contact a credit agent counselor and/or bankruptcy attorney for advice. (Amelia Sedan, Financial Aid - Financial Aid Specialist I)
- You may contact the following Coordinators to schedule an appointment; Terri Beeson, Program Coordinator or Lissa Gallegos, Program Coordinator located at the Lone Tree Campus)
- If doable, decide which debt to pay off first (highest rate or lowest balance?) — “target debt.”
- Set up “auto pay” for required minimum for all debts except target debt.
- Pay as much as possible toward target debt until paid off.
- Choose new target debt and pay extra toward that one, and so on.
- Check periodically to see if your credit score improves
- As your credit score improves, reconsider consolidation loan or balance transfers to save money on remaining debts.
- Stick with your plan until your debt is paid off.
Debt consolidation
Groups all your existing debts into a new loan to steam-line payments - you'll pay one bill monthly. This can lower your monthly payment and your interest rates.
Debt Management - Offered by companies or non-profit groups that helps you negotiate a new payment plan with your current creditors. So unlike debt consolidation, you still have the same debts (with the same balances) but you negotiate for lower interest rates and, if necessary, lower monthly payments. You will have to stop using credit cards (?) for the duration of the program, which will hurt your credit score.
Debt Settlement - With debt settlement, you are telling your creditors “Sorry, I can’t pay the entire amount I owe, but I can pay a fraction of it to you right now if you’ll cancel the debt.”Debt settlement will hurt your credit score pretty significantly. It’s not something you should do before considering other options. However, for some people, it will be the best option
Do it yourself - Why would I try to settle my debts on my own when I could get help from a debt collection company?
- You can save money by calling banks, creditors, and collections agencies yourself instead of seeking out companies to help you
- Debt collection companies may charge up to 25% of what you owe as a fee for their service
- If you owe $50,000 for example, you could pay $12,500 or more in fees.
- Doing it yourself requires persistence, hard work and the willingness to deal with debt collectors for months or years.
When doing it yourself
- Pay some money up front - Some lenders won't even begin negotiation without at least 50% of your outstanding balance paid
- Be ready to deal with an attorney. Most creditors have agents or customer service reps to handle some debt negotiations. But at some point be prepared to see a lawyer get involved who is representing the creditor.
- Send a money order for any credit payments. When you make a payment to your creditor with a credit card or banking account, in the process they have obtained all of your pertinent banking information. If you are sued, it's simple for the creditor to get at your funds through your bank account. So, make sure you pay with a money order.
- Seek "Paid in Full" status. Creditors will usually settle for less on the dollar so they can guarantee they at least get something back. This means you can expect to pay less for a lump-sum payment; however, you should also demand that the debt be shown as paid on your credit report.
- Bring a lawyer to bolster your defense. If negotiations go nowhere, or if either party fails to live up to their end of the bargain, the lawsuits can begin. It's good to start thinking about this early on.
- Be realistic. You might be tempted to back down a bit and accept a repayment deal that is still too much for you. This is a mistake. Don't agree to any debt payment plan that you can't pay. Be honest. Tell them what you are willing to pay, and let them know if they demand more you could be forced into bankruptcy (where they will receive no payback at all).
- Find out how far the creditor is willing to go. If a creditor offers three months at no interest, ask for six. Always aim high and understand how much room you have to work with within your personal budget.
Bankruptcy
Chapter 7 Bankruptcy: The most common form of bankruptcy, also known as the “liquidation bankruptcy.” Although many people mistakenly believe you have to lose all your assets in a Chapter 7 bankruptcy, the reality is that you get to keep any assets that are covered by the exemption law in your state.
Chapter 13 Bankruptcy: Also known as a “reorganization bankruptcy.” You file a “repayment proposal” that outlines how you will pay off some of your debts over a period of 3-5 years. How much you need to pay each month will depend on factors like your income, expenses, kinds of debt, etc. In some cases, Chapter 13 can help people save their car or home by giving them 3-5 years to get caught up on their payments toward those debts.
Sources: http://blog.readyforzero.com/ways-to-get-out-of-debt/#.VmUIbr8-899
http://www.investopedia.com/articles/pf/08/debt-management.asp#ixzz3tgqsZkhC
https://www.credit.com/debt/get-out-of-debt/