When you are in over your head with debt it can feel overwhelming, like a hole you cannot get out of. Unfortunately, there are many Americans drowning in debt. The Coronavirus pandemic has caused quite a few Americans to experience financial distress due to job losses or reduced incomes. This led to borrowing, and lots of it. Slightly more than half of adults, 51% or roughly 51 million people, added to their credit card balances, according to a report by CreditCards.com. 44% blame the pandemic for their additional borrowing.
What are the options to getting out of debt? Some of the most utilized options for getting out of debt are bankruptcy, debt settlement, and debt management.
Bankruptcy
Bankruptcy offers you the chance to start over again by forgiving debts that you simply cannot pay while giving creditors a chance to obtain some way of repayment based on the assets you have available for liquidation. Bankruptcy usually requires you to appear in court, and upon the successful completion of bankruptcy proceedings, you are relieved of the debt obligations you incurred prior to filing for bankruptcy.
While bankruptcy can appear to be an easy way to solve your debt troubles, it is important to remember, if you file under either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code, it will become public record. Bankruptcy will be reported to the credit bureaus, which will severely lower your credit score. This is a result of your debts being reported to the credit bureaus as not paid in full and these notations can stay on your report for seven to ten years, depending on the specifics of your bankruptcy filing. They could affect your ability to obtain a loan in the future and even future employment for those applying for jobs that require dealing with money, such as bookkeeping, accounting, payroll, etc. Bankruptcy filings can have expensive court fees and attorneys’ fees, which may not be recoverable.
Debt Settlement
Debt settlement, (also known as debt reduction, debt negotiation or debt resolution) can also be an effective option for getting out of debt. Debt settlement is when a settlement is reached after negotiating with a debtor’s unsecured creditor. Typically, the creditor agrees to forgive a large part of the debt per the terms of the written agreement. It is common that the debtor makes one lump-sum payment or a schedule of monthly payments, in exchange for the creditor agreeing to consider the debt closed. If the debtor performs what is agreed in the negotiation, there should be no outstanding debt from the creditor on the debtor’s credit report.
Debt Management
Debt management is another way to reduce unsecured debt, such as credit cards and personal loans. Debt management typically uses financial planning and budgeting to reduce and take steps to eliminate debt. You can do debt management on your own by creating a personalized budget that can outline your income and expenses and areas to pay off your debts. Calculators and financial management apps are tools that can be helpful in managing your debt. You can also try negotiating with your creditors to gain favorable terms, such as removing any late fees incurred, structuring lower monthly payments or a lower interest rate. It is best if you can make an immediate payment while on the phone with the creditor to show you are serious in paying back the debt.
The other option would be to engage a credit counseling service. Credit counselors can help you come up with a debt management plan to repay your debt and will work on your behalf to negotiate a payment plan with your creditors. The payment plan is structured to payoff and eliminate your debts. An advantage of using a credit counselor is that they usually have experience negotiating with creditors.
If you find yourself needing assistance with unsecured debt and are interested in exploring debt relief options, Progressive Debt Relief is available for free consultations. Call 877.590.1847 or use our contact form to schedule a complimentary consultation today.
