The means test gave bankruptcy a whole new meaning. Before its implementation, bankruptcy meant not having to pay for any debt that you owe. At least, that will be the case when the court finds that you are in a real financial crisis. They will view all your assets and see which ones can be liquidated. That involves the process of selling off valuable assets and the proceeds go to your creditors. Anything that is not paid off will be discharged (or forgiven).

During a financial crisis, some people just want to get out of it - regardless if there will be severe credit score implications. They file for bankruptcy just to get it over and done with.

The government took notice of this and came up with the means test to separate the abusive bankruptcy filers from those who are in a real crisis. This test lists a series of qualifications that should be met. Now, people have two bankruptcies to consider. The first one is Chapter 7 and it is similar to what was described in the beginning of this article.

The other type is known as Chapter 13. This is type of bankruptcy involves a repayment scheme that is similar to debt settlement - minus the deliberate defaulting on payments. It is also something that both you and the creditors will submit to. The court decides everything and the both of you will have no power over the court ruling. The bankruptcy court will look over your finances and your debts and come up with a repayment plan that you have to complete. Once completed, the rest of what you owe will be forgiven and you will be debt free.

To decide which bankruptcy you are qualified for, you need to go through the means test. The initial scrutiny will be on your debts. It will be done by a court appointed official known as the trustee. There are debts can cannot be covered by bankruptcy and the trustee will identify them. Then your income will be checked. If your income is below the median salary range of the State where the bankruptcy petition was filed, then you qualify for Chapter 7. If not, then you will be scrutinized further.

You need to deduct your basic expenses from your income. The income has to be the average of what you received for the past 6 months. For the expenses, you need to know that there is a standard list of what you are allowed to deduct from your income. The expenses for your yacht may not be included in this list.

The difference will be called your disposable income. If there is none left, then you may find that you still qualify for Chapter 7. But if the amount is significant enough, then you will end up with a Chapter 13 filing.

These are your options for bankruptcy, but know that you have other alternatives to get out of debt. You need to consider that there are debt consolidation options that you can look into. These include debt management, debt consolidation loans and debt settlement. They all have specific qualifications too but they will their effects will not be as destructive on your credit score as those of bankruptcy.

The key to succeed in any debt relief effort is to come up with a plan that will serve as your guide towards debt freedom. Anyone who is gearing up to deal with their debt problems should anticipate a lot of temptations along the way. You will find a lot of instances that will tempt you to use your debt payments for something other than your debt. These should all be avoided so you can get out of debt as soon as possible.

One of the best plans that you can use is a debt management plan or a DMP. This is a required plan during a debt management program. A debt counselor will be assigned to you to help create it. They will help you implement it too. However, if you want to skip the fees associated with this debt solution, creating your own DMP may prove to help you make your DIY debt relief program possible.

So what can be found in a debt management plan?

First of all, it lists all of your debts. When you work with a professional, you can only include your credit cards, personal loans, and other unsecured debts. Since you are doing this on your own, you can probably include other secured debts in it like your car and home loans. The important thing is to list down all the debts that you want to monitor payments. That is what the DMP will help you accomplish. It will help you manage your debt. When you list your debts, highlight important details like the debt balance, minimum payments and the due date.

After you have accomplished this, determine the amount that is left of your income after your basic living expenses had been paid for. What you have to realize is when you go through this path, you need to have adequate income to support your debt payments. That means there is extra money left after all your basic necessities are paid for. If you do not have this, you may have a hard time with this debt solution. If your income after living expenses are a little short, then you can look at your expenses to see where you can save some more. Or your can grow your income to meet your debt payments. If none of it works, you could be better off with other programs that will aim debt reduction rather than a simple debt management plan.

Another thing that you can do is to negotiate with your creditors. This negotiation is usually only for unsecured debts. Negotiate with them to accept a lower monthly payment in exchange for a longer term. This is best done in writing so you can document all communication efforts with the creditor. Ask them to freeze your account if they have to. Show them the DMP that you created for the debt that you owe them. Start with your credit card debts and then your personal loans until you reach an adequate amount that your income can afford.

The main factor that will make your DMP successful is how you stick with it. If you succeed in lowering your monthly payment with certain creditors, you need to ensure that it will be followed strictly. Otherwise, they may go back to the usual amount that you are required to pay off. That will mess up your budget for the rest of your debts.

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.

Debt negotiation is an effective way of getting out of debt. It involves communicating with your creditors so they can accept your proposal to pay for only a portion of your debt and have the rest of it forgiven. Not all creditors will immediately agree to this. Most of them will probably give you a hard time at first. But if you know that it is possible and you use the right techniques, you may get the approval that you need. If everything goes well, you may find yourself out of debt in less than 4 years.

However, you need to make sure that you have the right debt first. Debt negotiation or debt settlement is only ideal for certain types of debts.

The best debt to apply this option to is your credit card debts. Card companies know that when it gets to bankruptcy, they will be on the least priority. That means, if you have mortgages, any liquidation coming from your personal assets will be sent to them first. The chances of the card companies getting anything is very low. This is why they will be more amenable to agree to your settlement offer. This is also true for other unsecured debts like those from store cards and personal loans that you have.

Secured loans like mortgages and car loans will not work because you cannot negotiate to settle without putting your collateral on the line. The best that you can do is to ask for a loan modification or a home refinancing. Debt consolidation may be the better debt relief option for you at this point.

For student loans, they are neither affected by bankruptcy or debt settlement so you really have no choice but to seek for government aid to get help. There are programs that will help reduce your loan amount - specifically the monthly payment dues. This way, it will be easier for you to meet your payments and spend for other important things in your life. If you are in a real financial crisis, you can even have your debt completely cancelled. But this is something that you need to be qualified for.

It is important to remember that all debt situations are unique and you cannot expect that all of them will be solved by debt settlement. But if you think that your credit problems can be dealt with through this option, then here are some tips that you may want to use.

First of all, keep mentioning that if your creditor will not lower your payments, you have no other option but to file for bankruptcy. If you are talking to credit card card companies, you know that they will be the first to be discharged so they will receive nothing from you. Settling will be their best option.

When you are negotiating for the amount that you will settle, aim for more than 50% off on your current balance. Or if you have a settlement fund set aside, aim much lower than that so you have enough room to negotiate without falling short.

Lastly, put everything in writing. There is no one else to do this but you. In case you come into an agreement, never send any payment unless the creditor sent you a written agreement that states everything that you discussed.

If you like the idea of consolidating your debts, you have two options that can serve as your debt relief method. They have differences and similarities and it is important for you to know them so that you can make a smart decision as to how you will solve your debt problems.

Let us discuss them one by one.

Debt consolidation loans is a type of debt relief that uses a big loan amount to pay off everything else that you owe. If you have three card debts worth $2,500 (debt A), $5,000 (debt B) and $10,000 (debt C), you will need at least a $17,500 loan to pay them off. If the $17,500 is approved, you will use it to completely settle debt A-C. That will consolidate your debt amount into the new loan that you just made. With the debt being stretched over 5 years, you can expect a lower monthly payment.

Ideally, you should compute the average interest rate of your other debts. Whatever you have computed will be your ceiling in terms of the interest rate on your new debt. Do not get a loan that will ask you to pay a higher interest than your current average. Usually, the low interest can be achieved by having either one of these: a good credit score or a collateral. Both of these will show that you are a low risk borrower and thus will prompt the lender to give you a low interest rate.

The other type of debt consolidation is known as debt management. Unlike the previous option, this requires the aid of a debt or credit counselor. When you enroll your debts with a credit counseling agency, you will be assigned one and they will look at your finances to see how you can make your debt payments. The counseling part is free. But if you want to take the service further to debt management, you will be asked to pay a fee that is no more than $50 a month. If you have fewer debts, you will pay less in terms of the service fee.

You will begin by creating a debt management plan (DMP) that will serve as your guide throughout the program. This will be custom made to suit your financial capabilities. The counselor will stretch your payments over a longer payment period so you can make lower monthly contributions towards your debts. They will negotiate with your creditor to approve this payment plan and they will guide you until its completion - or at least until you decide to pull out from the program, which is not really advised. Once the creditor accepts the DMP, you will make single payment contributions to the counselor who will distribute the funds to the respective creditors. They will also try to negotiate with the creditor to lower your interest rate - but this usually happens once you are already updated on your payments.

Both of these options, debt consolidation loans and debt management, will require you to have a steady income. Despite a lower monthly payment, there will be no debt reduction on your current balance. The longer terms will see to it that you will be required lower dues.

When choosing between the two, look at the requirement list and see which among the two you can meet. For instance if you have a bad credit score and if you do not have a collateral or you do not want to put it on the line, then debt management is your best option.

Another consideration is the methods. In debt management, all the accounts enrolled in the program cannot be used - this will not happen in debt consolidation loans.

When your credit report reflects that you are undergoing debt collection, that is usually a bad sign. It is one of entries that will lower your credit score. This means you have been late on your payments and a collector had been called in to make more aggressive efforts to get you to pay what you owe. If this is your current situation, then you need to take action immediately.

Your concern will now be more than just paying your dues. You have to try and fix the blemish on your credit report. To do that, you need to have this entry deleted from your report. But how do you do that? Your goal should be to get the status of that account back to “Current” or if possible, “Paid.”

To do that, you obviously need to pay back your debt. The ideal scenario is to come up with the full amount that will allow you to pay your credit completely. If you have that, you can negotiate with the collector to remove the debt collection entry on your report. That is possible but only if you can wipe off your debts completely. If not, the most that you can expect is to have it reflect as current. That means you are meeting your payments without a problem.

In case the collector insists that you pay off the debt completely, ask them to remove the account altogether. But only offer this if you are sure that you can get an amount that will allow you to meet the collector’s requirement. If they will not agree to this, have them change it to “Paid in Full.” Again, this should all be in writing before you send any payments.

Try to convince your collector to change the status on your report. You can send a letter to your collector to delete the entry on your credit report in exchange for payments. Specify if you will pay all of the debt or get it current. A written response from the collector stating that they agree to remove it if the X amount is paid off should be received first before you pay off anything. Do not agree to pay unless they also agree to change it - that is unacceptable and you should get a copy of your credit report to make sure the changes had been made. Do not be afraid to negotiate with them if you cannot afford the required payment.

In the event that you really cannot meet even the required amount, then you may have to opt for debt settlement. You can choose to hire a professional to help out in the negotiation process or you can do it on your own. If all goes well, you can expect that your report will reflect “Paid. Settled.” This is not as ideal as the other scenarios but it is definitely an improvement. It simply means you have paid only a portion of your debt and had the rest forgiven.

Ultimately, the best way to get out of debt with a debt collector is to really pay it off in full. And if you really do not want to get your credit report blemished by your debt, keep up with your payments so collectors do not have to get involved.

Who ever said that you need to give up fun activities just so you can afford your debt payments? While it may be true that your debt payments could eat up a huge percentage of your income, that does not mean you should adapt the extreme life of really spending only on what you need to survive. If you think that you can make that commitment, then go ahead. But the bottom line is, you will burn out yourself. The effort of paying off your debts, working hard to make ends meet can take its toll on you. If you do not find a way to enjoy your life despite all your debts, you may end up quitting the debt relief effort altogether.

Good news is, you don’t have to take out all the fun things about life. You may have to change activities though. There are many things that you can do that provides entertainment and will not necessarily cost you a lot of money.

When you want to have fun, it usually involves other people. It can be your friends or your family. Regardless of that, you need to understand that hanging out with friends or enjoying weekends with the family does not have to happen in an expensive place.

You can have your friends over for a weekend barbeque or a whole day movie marathon. Have them bring food with them so you don’t have to spend for everything. You can all share in the cost and the venue, since it is your home, does not have to cost you anything.

For the family, you can spend your weekends going to the park or visiting the museum or other historical places near your home. Spend an afternoon going on a picnic in the park. Or you can jog/bike together to see the sights near your home. You can drive to the nearest lake or beach and spend a quiet (or noisy) afternoon with only the sights and sounds of nature. These are only a few of the things that you can use to bring back the joy in your life.

You should also try looking at your local community to see if you can spend your free time helping out. It can be to gather relief goods for people who got hit by a natural disaster. Or it can be to help in a drive to clean the environment you live in. It can also be serving lunch to the less fortunate. This is a great alternative to going out to see a movie or go shopping. Not only will it cost you less, it will also help you feel good about yourself and even your current debt situation. Working with the less fortunate will put you in a more appreciative perspective because your situation is not as grave as others.

Of course, working on a hobby - especially one that can earn you money is also a good way to have fun during your free time. If you love to write, make an online journal of your experience. As you input more articles and personal accounts, your following can grow and you can actually earn off your blogsite through advertisements. Or you can tend to your garden and grow your own produce.

Being productive through a hobby will give more than just something to do during your free time. It can even help you with personal fulfillment that can fuel the motivation that you need to get on with your debt relief efforts.

Using debt relief tools will help you get out of debt effectively. Regardless of the debt solution that you chose, there are certain plans that will help you accomplish your goals more effectively. One of the best tools that can really help you even beyond your debt problems is your budget plan.

A budget plan allows you to scrutinize your income and expenses to help you understand the amount that you can allot for your debts. It gives you insight on how you much you can afford to spend on your food, groceries, utilities, clothing, and other basic necessities that you need to spend for to live a comfortable life.

However, there are times when people begin their budget with much enthusiasm yet they end up falling short of their financial goals. They think that this tool is not working for their benefit at all. If you can relate to this, you need to consider a couple of things first. A budget is usually effective. If it is not, then there is something wrong with how you created it.

First of all, scrutinize the details of your budget - especially the expenses. Did you set realistic amounts for every category? You need to make sure that finances you allotted for your day to day spending is the real amount that is needed. Do not put a small figure just because you want to make your disposable income bigger. If your expenses are not enough, then you need to increase your income to afford the things that you need to spend on.

Another problem that could be causing the ineffectiveness of your budget is the fun expenses. Some people just cannot live without certain fun activities and you need to consider that. If it can help motivate you to be more productive, then opt to scrimp on something else. Or if you are just starting your budget, cut back on fun expenses slowly. You do not have to get rid of them completely.

You should also consider the goals of your budgeting efforts. If you created a budget to help you pay your debts and save, you need to prioritize what is more important. That way, if you have to cut back on any spending, you know where the initial funds should go. This is necessary if your income is not enough to cover all your financial goals.

Lastly, you need to let the whole household decide on how the budget should be created. It will be easier to solve your financial woes if you work as a team. Unless you are all alone, you should keep your budget everybody’s business. Even if you want to shield your children from your financial problems, exposing them may prove to be more beneficial. As long as you show them the right way of getting out of debt, they should be able to learn a really important lesson that will teach them proper financial management.

A budget can be quite tedious to implement. But if you can meet all the requirements to make it work, you may find yourself with a more organized financial listing that will allow you to meet your goals and make smarter financial decisions.

One of the primary reasons why credit card debt is so hard to get out of is because of the high interest rates that is added to it every month. If you can only get rid of this rate, do you think you can pay off your debts quickly?

If that is all that you need to get ahead of your credit problems, then there is a way for you to get rid of your credit card’s interest rate. It is another type of debt consolidation that makes use of balance transfer cards.

The idea is to literally transfer the credit card balance to another account. You can shift your balance to an existing account that has the lowest interest rate but if your goal is zero interest, you can avail of a new account that offers this as an introductory promo.

With all the negative publicity about how credit cards can easily put anyone in debt, banks and credit card companies came up with a promotion that will attract discouraged consumers. They offer these zero interest cards so debtors have the option to transfer their high interest credit card balance into this new account. Of course, there is a fee involved that is usually a percentage of the amount that you will transfer. Nevertheless, the elimination of the interest rate is a great way for anyone to eat up a huge portion of their debt.

The companies behind these balance transfer cards are strictly mandated by the government to lengthen the zero interest promo period. The minimum is 6 months. After that, these cards will go on to their intended high interest rate charges.

Before you proceed with this debt relief option, you need to come up with a payment plan that will take advantage of the time when you will be free from the high interest rates of your credit card. If you have a huge amount coming in, you should put all of that in your debt payments. The goal is to pay off your debts during the promo period - or at least have the smallest balance left. Despite the presence of the high interest after the promo, you need to pay that off immediately to keep your debts from growing bigger again.

When you are choosing a card to use in your balance transfer, you need to read through the fine prints to make sure that you understand the charges involved. More importantly, you need to ensure that you know the time limit of the zero interest privilege.

As you are paying off your debts, you need to be very careful about the rest of your cards. You have to maintain a strict spending diet. If you have to, lock up your credit cards - which incidentally are now free from balances. That can be very tempting to use and thus grow your debts once more. Keep them hidden as long as you like - at least until after you are convinced that you can control your credit card spending.

When you realize that your credit card debt has grown into a huge amount, your initial reaction will be shock, disbelief and then denial. Most people get over these three reactions immediately and start to take action for their credit responsibility. However, there is also the percentage of debtors who refuse to accept their debt and choose to ignore the debt that they currently owe.

While not thinking about your debt will keep the stress away, you will never be at peace. It may allow you to continue living the life that you got used to but that will only be temporary. Your credit card debt is the type that can quickly spiral out of control. To convince you that ignoring your card debt is a bad idea, here is a rundown of what will happen the longer you run away from this credit obligation.

Whenever you miss one payment, your creditor will immediately take notice of this. It will be considered a missed payment if you send less than the minimum payment requirement or send nothing at all. Even if you are late for only a day, you will immediately be given a $25-$35 worth of late fees. The exact amount will depend on your credit card company. This fee will be added on top of your balance. On top of that, your current balance will be used to calculate for the interest amount that will be added to your minimum monthly payment. This is done by getting your balance and multiplying it based on the current APR (Annual Percentage Rate). The product will be the interest rate that will be placed on your monthly minimum payment. As you ignore your balance, it will grow and thus making the interest amount grow as well.

Usually, it takes the creditor 30 days before they report that you have not been making your payments. If two billing statements passed without any payments from you, then you can expect that your credit report already reflects this behavior and your score will decrease because of that. This decrease can be more than 100 points - depending on your current score and the time that lapsed since your last payment. Some creditors wait until after 90 days before reporting that you have been defaulting on your payments.

When you have been late for 30-60 days, you can also expect that the people who will call you will be coming from the collections department already. The good news is, this is still within the company so the callers will still treat you as a client and will not be disrespectful. They will still try to salvage their relationship with you in hopes that you will still do business with them in the future. However, this also means that the creditor already marked you as a bad account. At this point, ignoring the debt will be very hard to do.

After 180 days of not paying your credit card debt, you can expect that your account is already charged off. This means the creditor gave up on getting any profit from you and will apply for a tax exemption to cover their loss. But this does not mean your debt is forgiven. In fact, it signals that the calls will get uglier because collection will be turned over to a third party company who wouldn’t care for you as a client.

A charged off debt also brings a negative mark on your credit score so you can expect that it will go even lower.

Bottom line is, ignoring your debt will not make it go away. The sooner you act on your debt problem, the easier it will be. There are many debt relief options that you can choose from. In fact, if your concern is your credit score, debt consolidation is the option that has the least effect on your report. Know your options and start getting yourself out of debt now.