Debt Solutions for the New Year!

Have you missed a payment or two on some debts that you owe?  Is your new years resoluiton to get out of debt?  When you are looking for sensible debt solutions there are 4 main ways to get rid of it.  We are going to go over the different ways and the impact they have on your financial life.

1. Pay it off on your own

If you have the ability to pay off your debt by yourself with only your discipline you will have no negative consequenses to your credit score.  The positive impact of you paying every month on your debts will increase your score quickly.  If you were getting any harassing calls they will stop as you begin to pay on a regular basis.  You access to credit will also improve as you begin to make on time payments.  The only chance you will have at a lower interest rate will be to call them and ask.  It definitely doesn’t hurt to ask.  If you chose to go this route the likelihood of having any of your principal reduced is nil.  Basically, this route will cost you the most but be the most beneficial for your credit score.

2. Debt Consolidation

A debt management  program is pretty much the same as debt consolidation.  Typically when you hire a debt consolidation firm to help you with your debts they will have an initial fee as well as a small monthly fee to be in their program.  They will call your creditors to get the harassing phone calls to stop.  By you taking this proactive approach your credit score will begin to improve however it’s difficult to obtain new credit while in the program.  Your interest rates will usually be lowered but your principal amount will stay the same.

3. Debt Settlement

As a debt solution Debt settlement is a very aggressive approach as it usually works by not paying your creditors on a monthly basis.   Instead you build up an account with the help of a company which will later be used to negotiate your debts for less than you owe.  This approach will dramatically impact your credit score negatively and take a while to clean up.  Also, there is a chance that your creditors may sue you for non-payment.  A good debt settlement company will be able to stop the harassing phone calls from your creditors.  You will most likely not be able to access any new credit for quite some time.

4. Bankruptcy

If you get to a place where the only solution is to consider bankruptcy you should probably seek legal council to see if chapter 7 or chapter 13 makes sense to do.  Depending on the type of debt and your complete financial situation will determine which one is better for you.  Chapter 7 bankruptcy may allow you to have your entire debt abolished.  Chapter 13 is a plan to pay back your creditors over a period of time.  Backruptcy will stay on your credit record for 7-10 years and make it very difficult to get any new credit for at least 2 years.  Bankruptcy stops all creditor calls immediately.