Debt Consolidation: 5 Tips On How To Pay Off Debt
Some individuals may face financial constraints in their lives. So they approach financial lending institutions to loan the money that they need. Other unforeseen situations may arise, forcing the borrower to sink further into debt. Luckily, there are various ways a debtor can pay off his debts.
Debt consolidation involves combining several loans into one debt consolidation loan. To take out a debt consolidation loan, it is imperative that you contact a debt consolidation company that meets your standards and which you feel to be comfortable to be working with. Debt consolidation companies have a role to play in your consolidation plan as they assess your credit score rating. Individuals who have good credit scores can suffer high-interest rates for their debts. By consolidating your debts, you only have one lender to answer to.
This type of debt involves paying a fraction of the outstanding debt amount that you owe to the creditor at that particular time. Here, you approach the debt settlement company who will negotiate with your creditors on your behalf. You are expected to provide the amount of income and savings that can be expended to pay off your debt.
The debtor, through the debt settlement company, pays the debts in lump sum once your creditors are okay with this plan. This method of clearing debt is, however, dangerous for the borrower since he may suffer a loss of both money and time if the creditor does not approve of the plan. The borrower’s credit score might also be hurt in the process.
Debtors also have an option of declaring bankruptcy to free themselves of debts. Through bankruptcy, debtors have the option of giving up some of their properties while they are exempted from the legal obligation to paying off debt (Chapter 7 Bankruptcy).
Property that is given up is then sold by a Chapter 7 Trustee and the proceeds are used to pay off the debts. The debtor does not, however, lose all his properties as some properties are exempted by the State.
The debtor may also be offered a chance to reorganize his finances and file for a working repayment plan (Chapter 13 Bankruptcy). This kind of bankruptcy requires the debtor to have a regular income as this guarantees that he is able to fund the repayment plan. The debtor makes monthly payments to the Chapter 13 Trustee who will then distribute payment to the creditors.
Financing your own debts
Most people find getting out of debt on their own rather difficult, but this is quite possible. First, reduce the possibility of getting into debt. Reduce unnecessary spending and frequent use of credit cards. If you are already in debt, you can look over your budget so that it accommodates your repayment plan. Reducing the amount of interest which you pay for credit cards would be another brilliant idea.
Debt management entails negotiating for a new repayment plan with your current creditors through debt management companies or non-profit groups. You can negotiate for more affordable interest rates and lower monthly payments. Within 3 to 6 years, with a brilliant repayment plan, your debts will be gone. Debt management is, however, associated with a low credit score.