Debt Relief Program Options

Determining which debt relief program is right for you is the most critical task in becoming debt free. Our online community can give you the feedback necessary to make an educated decision. Below you will find a brief summary of each debt relief solution along with related links to online chats, blogs and opinion polls about that solution. Come explore and learn from the experiences of others for free.

Important Note: We are not providing any legal advice or recommending you use any legal or financial service on this website. If you are considering bankruptcy or any other legal or financial option you need to consult with the appropriate professional in that field.This page is intented to provide a general summary of common benefits of each debt relief option.

Debt Settlement
Debt settlement is a legal debt relief process for people who are suffering from a financial hardship such as the loss of a job, divorce, medical issues or another life changing event that has caused you to be in serious debt. In these situations a debt settlement service can negotiate directly with your creditors to reduce the ACTUAL amount owed and pay it off in one lump sum, or in several payments. The creditor is motivated to reduce your debts because if you file for bankruptcy then they risk not recovering any of the debt owed to them. For the consumers who successfully complete the program they can significantly reduce their debts and create a way to possibly avoid bankruptcy court. With these significant benefits there are some side effects. Since you have not paid your debt in full your credit worthiness will likely decrease, creditors can be agressive in calling you to collect on your debts while in the negotiation process and the program only works with unsecured debts such as credit cards and medical bills. If becoming debt free quickly for a fraction of what you owe is outweighs those effects then you may want to consider a debt settlement service.

Credit Counseling Services / Consolidation
Credit counseling is the most widely known debt relief solution as it has been in existance for many years and has been largely backed by the credit card companies themselves. Credit counseling services can help with variety of debt types from car loans, to medical bills to credit cards. They have pre arranged agreements with your creditors to restructure your repayment terms. For example they may reduce interest rates and waive late fees to reduce your monthly expenses. The drawback to credit counseling is that since you are paying less towards your debts each month it is only logical that it will take longer to pay off the debt. In addition you are not reducing the debt, you are still paying the debt in full plus some interest and fees to the credit counseling service. And lastly Credit Counseling has a strong negative impact on your credit worthines. However, if you have a multitude of small debts and just need a little break from the monthly payments credit counseling might be for you.

Debt consolidation loans
Taking out a low interest loan backed by the equity in your home to pay off high interest rate credit cards is a popular strategy for today's homeowners. A home equity loan can help you pay off your debts all at once in a matter of a few weeks and you can reduce your interest rate on that loaned money dramatically. There are high risks though. In essence you have traded unsecured debt (credit cards) for secured debt, your home. If you fail to pay your monthly equity loan payment the bank could foreclose on your home. This is why borrowing more money and putting your house at risk when you are in serious debt is a very risky proposition. This strategy is best for consumers who have a lot of equity in thier home, have steady employment and can make the spending changes necessary from falling back into debt again.

Bankruptcy:
Bankruptcy is the act of telling your creditors you no longer have the means to honor your debts to them. There are many types of bankruptcy, but Chapter 7, Chapter 11 and Chapter 13 are the most common.

Chapter 7 bankruptcy has been known as the chapter of bankruptcy that can "erase" all of your debts and that is for the most part true.

Chapter 11 bankruptcy is used mostly by businesses to file for bankruptcy as it has certain benefits for the small business owner.

Chapter 13 bankruptcy does not "erase" all of your debts, but instead restructures your debts. In essence you will still be required to pay back most of your debts, but over a period of time determined by the bankruptcy court and your creditors.

The new bankruptcy laws of October 2005 has made filing bankruptcy more difficult and expensive, especially chapter 7. Now you must qualify for each chapter by meeting certain income and debt requirements that vary from state to state. In addition you must complete a counseling program and complete a financial education course in order to complete your bankruptcy. The fee for filing either chapter 7 or chapter 13 has increased. Experts say that there is now more liability on behalf of bankruptcy attorneys this in turn means that attorneys will raise their prices to cover any potential expenses. Bankruptcy filings have decreased dramatically in the first quarter of 2006 due to these changes.

Important Note: We are not providing any legal advice or recommending you use any legal or financial service on this website. If you are considering bankruptcy or any other legal or financial option you need to consult with the appropriate professional in that field.