Getting Out Of Debt

November 11th, 2010 | Posted in Credit Card Debt

You may choose debt management plan if you have many loans and are unable to pay them. This option should be chosen after a thorough study of your debt situation by a certified credit counselor which may take hours. It involves monthly payments from you to a reputable and authorized credit counseling organization which in turn pays your dues to various creditors of unsecured loans such as student loans , medical bills, credit card debts.

If you opt for debt management plan you may have to give an undertaking not to avail any new loans till the old ones are cleared. Such companies discuss your situation with your creditors and most of the times the interest rates of the various loans are reduced to make it more bearable. This should be cross checked by you with your creditors. These companies also teach you money management and budgeting skills so that you will be careful and become credit worthy again. You must be wary of companies that enroll you in a debt management plan without reviewing your financial situation, or ask for voluntary donations or charge you high start up fees.

Debt Consolidation is the process of consolidating all your debts into one secured loan tied to a collateral such as your house. The advantage of this is that there is no botheration to keep track of various loans which are clubbed together to become one. The other advantage is that the interest rate may be reduced because the loan is secured now compared to unsecured loans. You may also get certain tax benefits. The only disadvantage is that you may lose your house if you do not pay the loan dues.

The one advantage of bankruptcy is that you can start life afresh with a clean slate. As the last resort you may solve your debt problem by applying for bankruptcy but it has far reaching repercussions. Bankruptcy is the legal way of getting out of debt without paying, for those who can not pay back their debts. Bankruptcy generally does not exempt student loans, taxes ,alimony and child support. Those who are declared bankrupt are exempt from paying certain debts. But the bankruptcy information remain in the credit report for ten years and may stop one from getting credit, getting insurance , purchasing a house and even affecting your chances getting a decent job.

For bankruptcy,you are also required to undergo “means test” to make you confirm that your income does not cross a certain limit if you apply under chapter 7. This amount differs from state to state. There are two types of personal bankruptcy according to US law namely chapter 13 and chapter 7 and both should be filed in federal bankruptcy court. Both the types permit people to keep certain properties and allow people to get rid of unsecured loans and stop repossessions, foreclosures and debt recovery. Before applying for bankruptcy one is required to have credit counseling from a government approved credit counselor before six months from the date of filing bankruptcy.

Learn how to pay off debts, and also why getting out of debt is easier with proper motivation.