Debt Relief Options

When you are faced with debt, you have many options available to you with regard to reducing the debt. Some of the most common debt relief options are as follows:

Debt consolidation
Debt settlement
Loan Modification
Foreclosure
Bankruptcy

All of the above will work towards either reducing or absolving your debt. These debt relief options work differently, are used for different purposes and all have different consequences.

Someone who has amassed debt with credit card borrowing and other unsecured debt can opt for debt consolidation. This can work to reduce the amount of debt owed and allow those who are undergoing the consolidation to pay one monthly payment that is considerably lower than a multitude of monthly payments they were previously making to pay off the debt. This is an ideal choice for someone who wants to pay off their debt and maintain their credit while still being able to afford the payments.

Debt settlement can be used alone or in conjunction with debt consolidation. It can work to settle a tax debt as well as other unsecured debt. The borrower pays off a portion of the debt, an amount that is usually negotiated by a third party, and the debt is absolved. It works well to reduce the amount owed on any debt and maintain credit.

A loan modification is used to restructure a mortgage so that it is affordable for the borrower. This can mean lengthening the term of the mortgage and reducing the interest rate. It works for mortgages and can allow someone to avoid foreclosure and save their home.

Foreclosure is when a lender moves to take over property that has been secured with a mortgage or deed of trust. This can take anywhere from a couple of months to a year or more, depending on what state in which the property is located. It appears on the credit of the borrower for seven years and greatly reduces the credit rating. It will cause someone to lose their home. Other debt relief should always be tried before this option is invoked as it is a credit destroyer.

Bankruptcy can be a Chapter 7 bankruptcy or a Chapter 13. Most people today file a Chapter 13 which consolidates the debt. It is a court proceeding that is usually filed by an attorney. It can only address unsecured debt and cannot affect a mortgage. If you are not working and have no assets, Chapter 7 can wipe out your debt, although the cost to hire an attorney for this option is formidable. Both Chapter 13 and Chapter 7 bankruptcies appear on your credit report for 10 years and destroy your credit rating.

When you are seeking debt relief, you need to ask your self the following questions:

Do I have assets that I want to protect?
Do I have a job?
Do I have a way to pay back the debt?
Is there any money now that I can use to pay off part of a debt?
Do I want to save my home?
Do I want to save my credit?

Not doing anything can put you at the mercy of a creditor who may not only destroy your credit, but may pursue a legal action against you that can result in a judgment. A court order in favor of the judgment can be enforced to freeze any assets that you have as well as garnish your wages. Needless to say, doing nothing about your debt is not an option. You need to take action and decide which option is right for you.

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