When it comes to a personal matter like debt, no uniform solution exists. You may be behind on your payments and starting to receive calls from creditors, or you could have just realized how large your overall debt sum actually is even though you’ve been able to make the minimum payment each month.
Everybody’s situation is different, and while debt relief can help dire financial matters, debt relief comes in many shapes and colors. In this article, we’ll highlight the key areas you should focus on to determine what kind of debt relief strategy is best for your financial situation and lifestyle.
Knowing Your Debt Relief Options
- Debt Management– Restructured payment plan that requires one monthly payment with reduced interest rates or fees, which is then sent among your various creditors.
- Debt Consolidation– Transferring multiple debts into one credit card or loan at a lower interest rate.
- Debt Settlement– Halting payments with the hope of getting creditors to accept a smaller sum and forgive the rest.
- Bankruptcy– Filing Chapter 7 bankruptcy can erase your debt in exchange for your possessions. Chapter 13 bankruptcy can let you keep those possessions if you can meet an agreed-upon repayment plan for several years.
- The DIY Approach– Taking matters into your own hands through debt management or debt consolidation.
Now that we’ve briefly defined each debt relief strategy, let’s go over each detail that will help you decide which is best for you.
Amount of Debt
In order to decide on your most viable debt relief strategy, you should probably know how much you owe. Not just in the neighborhood. The exact number.
Type of Debt
Do you have personal credit card debt or a massive student loan? Is your mortgage what’s causing you to fall behind or is it an overzealous loan on a new SUV? Maybe it’s an astronomical medical bill or you’re still recovering from a costly IRS audit from a few years back. These details matter because not all of them can be helped by debt relief. PolicyGenius breaks down the types of debt that can and can’t be forgiven.
Debts that canbe forgiven include:
- Credit card debt
- Medical bills
- Overdue bills owned by collection agencies
- Personal loans
- Utility bills
- Business debts
- Unpaid/overdue taxes (if at least three years prior)
That means government-issued credit like student loans, or newer penalties and fines owed to the government, don’t qualify. Neither does child support or domestic debt, debt resulting from reckless actions (e.g. criminal), and secured debts like an auto loan, a mortgage, or any other big-ticket purchases you’ve financed.
Credit Score
Aside from physical cash itself, a credit scoreis our main badge of trust to separate ourselves in the financial world. Engaging in debt relief strategies can certainly leave their mark on your credit. If your credit is already bad and you’re struggling to keep up with your payments, then debt settlement or bankruptcy won’t hurt you as much, but ultimately will still have a negative effect on your credit score. However, using one of these methods to get out of debt could allow you to rebuild your credit without struggling to keep up with your monthly payments.
Income
Have you overestimated your amount of disposable income? Are you struggling to make ends meet and can’t get ahead? Do you fall somewhere in between? Depending on what you can expect to earn over the next six months to a few years, it’ll be clearer if a strict budget is all you need or if something more serious like debt settlement needs to take place.
Debt is nothing to mess around with. Even when handled correctly it has a half-life that sticks around for years. If you can make payments through a management plan by restricting your lifestyle, do it. If you’re in so deep you can see your way out, then a more aggressive strategy like debt settlement or bankruptcy become options.
The important thing is to do something. Sitting around paralyzed by fear and indecision only worsens things. Empower yourself by acting on your debt today.
