When it comes to obtaining debt relief, there are several options debtors have. Depending on the type of debt one is dealing with and the debtor’s overall financial situation, bankruptcy may not be the best option for relief, so it is worth it to consider the alternatives.
One possibility for debtors is to take out a debt consolidation loan and to use that money to pay off all other debts with the aim or reducing the interest one is paying on a monthly basis. One benefit of this approach, besides reducing the interest rate, is that it allows a debtor to make a single payment on what used to be multiple debts.
Debt settlement is another alternative which involves negotiating agreements with creditors to work out lump-sum settlements. The benefit with this is that the decrease in the amount of principal the debtor owes allows him or her to get closer to paying off the debt. Debt management is another approach, and one which can be used for unsecured debts such as credit card and medical bills. The idea with debt management is to work with creditors to obtain relief from interest, fees and penalties so that the debtor’s monthly payment is more manageable.
In a future post, we’ll speak a bit about when filing for bankruptcy may or may not be a good idea in comparison to these alternative approaches.
Credit counseling, rather than dealing with a specific approach to handling debt, can be a helpful resource for determining the best approach to take with debt. Credit counseling involves working with a credit counseling agency to examine the debtor’s budget and come up with a debt relief plan short of filing for bankruptcy. Credit counseling is actually required for those who file for bankruptcy, though it can be sought out by those who have not filed as well.
Whenever an alternative approach to bankruptcy is pursued, it is important to work with reputable companies to ensure that one is not subjected to fraud, which is a real risk in these approaches. In addition, it should be kept in mind that alternatives to bankruptcy are not free to pursue, and that debtors can expect that there are costs even for legitimate debt relief services.