What do you do when your income is not enough to cover both your basic needs and your debt payments? Do you run away from all your problems and give up?
Although you may feel like giving up and just run away from all your debt problems, you need to face the mess that you made. Ignoring your debts will not make things better too. This is one problem that you need to act on to be able to solve it.
If your income is not enough to cover your basic expenses and all your debts, one of them will have to change. It’s either you increase your income, you lessen your expenses or your reduce your debts. For some people, the first two is their first option. But then again, what if you did both and it is still not enough?
Fortunately, there are debt reduction options for people who need it: debt settlement and bankruptcy.
The first option is debt settlement. Of the two, this is the more prominent option in terms of debt reduction. The fact is it does not have that much negative effect on the debtor’s credit score - unlike bankruptcy. You will begin by telling your creditor that you are in a financial crisis. To prove this, you will deliberately default on your payments. Instead of sending the amount to your creditors, you will place it in a separate account where you will grow it to be your settlement fund. This is what you will offer your creditors. When the 6th month or so comes in, a collector will take over and will be more aggressive in their efforts to get you to pay.
The key to sway the creditor/collector to agree to settle is by telling them that you are on the brink of bankruptcy. Creditors, especially credit card companies are among the last to be given anything when a debtor files for bankruptcy. So you can very well expect that they will be hesitant to go to bankruptcy. If they agree to your request, you will pay the settlement amount and the rest of your debts will be forgiven. Your score will suffer because of the deliberate defaulting on payments.
While there is a significant debt reduction, there are instances wherein people opt to avail of bankruptcy instead of debt settlement. This is despite the credit score implications that are the worst among all the other debt relief options. This is when they don’t even have enough to pay for the settlement fund.
There are two ways for it to go: Chapter 7 and Chapter 13. The first is the option that most people want to get because it leads to the complete discharge of their debts. If you have any valuable asset, the court will decide which should be liquidated and distributed to your creditors. Anything that cannot be covered will be forgiven and no one will come after you again for it. Chapter 13 is similar to debt settlement because there is a repayment plan that the court will order you to complete. Once this is fulfilled, the rest of the debt will be forgiven. The court will decide which bankruptcy you will file depending on the means test. For instance, if your salary is above the median range in the State where you filed bankruptcy, then your chances of filing for Chapter 13 is high.
These options will get you out of debt in 4 years or less. If this is your only option, do not worry too much about your credit score. While it will be destroyed, the important thing is to get out of debt. You can always rebuild your credit score. Just make sure that you will start making smarter financial decisions so that you will stay out of debt for good.
Although you may feel like giving up and just run away from all your debt problems, you need to face the mess that you made. Ignoring your debts will not make things better too. This is one problem that you need to act on to be able to solve it.
If your income is not enough to cover your basic expenses and all your debts, one of them will have to change. It’s either you increase your income, you lessen your expenses or your reduce your debts. For some people, the first two is their first option. But then again, what if you did both and it is still not enough?
Fortunately, there are debt reduction options for people who need it: debt settlement and bankruptcy.
The first option is debt settlement. Of the two, this is the more prominent option in terms of debt reduction. The fact is it does not have that much negative effect on the debtor’s credit score - unlike bankruptcy. You will begin by telling your creditor that you are in a financial crisis. To prove this, you will deliberately default on your payments. Instead of sending the amount to your creditors, you will place it in a separate account where you will grow it to be your settlement fund. This is what you will offer your creditors. When the 6th month or so comes in, a collector will take over and will be more aggressive in their efforts to get you to pay.
The key to sway the creditor/collector to agree to settle is by telling them that you are on the brink of bankruptcy. Creditors, especially credit card companies are among the last to be given anything when a debtor files for bankruptcy. So you can very well expect that they will be hesitant to go to bankruptcy. If they agree to your request, you will pay the settlement amount and the rest of your debts will be forgiven. Your score will suffer because of the deliberate defaulting on payments.
While there is a significant debt reduction, there are instances wherein people opt to avail of bankruptcy instead of debt settlement. This is despite the credit score implications that are the worst among all the other debt relief options. This is when they don’t even have enough to pay for the settlement fund.
There are two ways for it to go: Chapter 7 and Chapter 13. The first is the option that most people want to get because it leads to the complete discharge of their debts. If you have any valuable asset, the court will decide which should be liquidated and distributed to your creditors. Anything that cannot be covered will be forgiven and no one will come after you again for it. Chapter 13 is similar to debt settlement because there is a repayment plan that the court will order you to complete. Once this is fulfilled, the rest of the debt will be forgiven. The court will decide which bankruptcy you will file depending on the means test. For instance, if your salary is above the median range in the State where you filed bankruptcy, then your chances of filing for Chapter 13 is high.
These options will get you out of debt in 4 years or less. If this is your only option, do not worry too much about your credit score. While it will be destroyed, the important thing is to get out of debt. You can always rebuild your credit score. Just make sure that you will start making smarter financial decisions so that you will stay out of debt for good.
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