It’s a fairly unwise to downright-ludicrous strategy to live life with the expectation of having a safety net, or a “get-out-of-jail-free-card.” It’s that type of invincibility that can destroy people’s lives, or even take them.
When it comes to the growing debt problem in the U.S., invincibility might not be the issue as much as plain-ole ignorance. Thankfully, getting into debt isn’t the same as driving drunk and harming someone; ways exist to remedy a grave financial situation and get debtors on the right track toward financial prosperity. Let’s discuss them below.
Debt relief is an umbrella term to describe any financial measure to get out of debt, either through a DIY strategy or by enlisting a company. For serious debt, debt relief really encompasses two main strategies:
- Debt Consolidation
Many people can’t resist the urge of what they deem a “great” credit card offer. This results in various accounts with different balances, interest rates and guidelines. The result? A difficult time prioritizing paying them all down in the most efficient manner (or paying them at all).
This is where debt consolidation comes into play. Instead of paying slivers off many balances each month and paying more in interest, you take out a larger loan with a lower interest rate to pay back all your balances at once. Then you can focus on paying one balance each month and have an easier time assessing your financial situation.
- Debt Settlement
When debt is contributing to every problem you have and the means to get out don’t exist, two things are sought: an actual solution and outside support. This is why the number of debt settlement companies has risen in the last decade. Opting for debt settlement means letting a company handle negotiations with your creditors to reduce your debt balance. If they’re successful and you agree to pay the reduced debt, you’ll pay them a fee based on your original debt amount. The process isn’t quick, though—taking anywhere from 2-4 years.
However, the number of reviews out there suggest it’s a popular option. Get an idea of what different companies offer by checking out review sites like Consumer Affairs, as well as FAQ pages of major companies like Freedom Debt Relief. Also call each company to get a feel for their transparency and level of care before you make your choice.
When a debtor cannot pay back their debt, they can initiate a court order to have that debt forgiven. In personal bankruptcy, debtors usually have two options to declare bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7
Declaring Chapter 7 bankruptcy usually arises in situations where a debtor does not have much or any income and little to no assets. Declaring Chapter 7 wipes away a person’s debt, but most of their assets are liquidated to help pay back their debts. Chapter 7 can stay on a credit report for up to a decade.
- Chapter 13
If a debtor has regular income, declaring Chapter 13 bankruptcy becomes the more sensible route, as it involves making court-ordered payments for 3-5 years (based on court’s decision) to pay back their debts. However, personal assets can be kept, and in a few years, the mess is behind you. Chapter 13 will stay on credit scores just as long as a Chapter 7, however many creditors view a Chapter 13 more favorably because of its requirements.
Of course, it’s well within your power to not do any of the above and remain inactive with your debt efforts. However, you’ll suffer the same consequences of the methods above and fail to achieve a solution. You’ll have to live with your debt every day knowing you’re no closer to the end of the tunnel. Contrary to popular opinion, you could also be sued by the collection agency and have to pay back your debt through wage garnishment.
Debt relief and bankruptcy may not sound like safety nets after hearing their cons. However, when you’re in more debt than you can manage, progress is progress. Debt relief strategies revive your dying financial life. Do your research and don’t make any rash decisions, but don’t be afraid of taking the steps to turning your life around.