Solutions For Every Type Of Debt

August 12th, 2011 | Posted in Credit Card Debt

There are several strategies for dealing with debt – credit counseling, debt consolidation, etc. – and none of them fits every situation. How you choose to handle your debt depends on the amount and the type of debt you have. For example, you may choose a different strategy for credit card debt than you would for auto loan debt.

If all you have is credit card debt, you have a few choices, depending on how much debt you have and what you could afford to pay each month. Consumer credit counseling is a good option if you need a slight reduction in your monthly minimum payments. Credit counselors negotiate a lower interest rate and minimum payment on your credit cards, but they add a fee that can put your monthly payment closer to what you’re currently paying.

Debt consolidation is another option for credit card debt, but may not be viable for credit card balances over $20,000. Consolidation involves paying off your credit card balances with a loan. However, getting a loan big enough to pay off credit card debt can be difficult. Personal loans, which are typically unsecured, are only available up to $20,000. After that, you’ll need collateral to secure your loan. You can consolidate with a home equity loan, but you have to own a home and the equity in your home should be large enough to consolidate your credit card debt.

Debt settlement can be used on virtually any size debt because you’ll only pay part of the debt and ask the creditor to cancel the rest. You have to be ready to pay the full settlement amount once the creditor agrees to your offer. How rapidly you settle your debt depends on the size of your debt and how fast you can come up with the money to settle your accounts.

Auto loan debt is different from credit card because the loan secures the vehicle. Credit counseling is not an option for auto loan debt. You can try debt consolidation, but, that means you have to either qualify for a loan large enough to cover your car loan or you need to have enough home equity to pay off the car loan. If you’re trying to consolidate an auto loan and credit card debt, you’ll need a loan large enough to cover both.

Debt settlement is not a choice for auto loan debt unless you’re willing to give up the car. In that case, you would pay a settlement on the difference between what the lender auctions the car for and the total you owed on your loan. Unfortunately, you have limited options for dealing with payday loans. You can consolidate them along with other debt, settle them (but you’ll have to dodge the lenders for awhile), or you can include them in a bankruptcy filing.

Dealing with student loans is difficult. Since lenders know you can’t bankrupt student loans, they will not accept a settlement payment. Consolidation is difficult, but can be done if you can get a personal loan or home equity loan big enough. If you apply for a loan specifically for student loan consolidation, you may have to qualify with more than good credit history. For student loans, it’s usually best to work directly with the lender on a forbearance or deferment option.

You may have to use a combination of strategies to handle all of your debt. For example, take out a consolidation loan and use it to settle your debts. Or you can consolidate some debts and use credit counseling on others. Think through your options and use the one that best fits your situation.

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