There are several methods available to the consumer to consider when trying to get out of debt. These methods are:
• Try and manage their current debt themselves – in other words tighten their belt and spending habits.
• Debt consolidation loan – this would combine all outstanding unsecured debt into a single payment loan. The problem is can the consumer qualify for a new loan with no job or financial hardship issue.
• Refinance or Home Equity loan – This might work, if the consumer has enough equity in their home, however the repayment may be an issue.
• Credit counseling service – This program acts like a debt consolidation loan. The consumer pays a third party company who in turns pays a small or set percent each month to the lenders until all the balances are pay off. In addition, there is credit counseling for the debtor and this will also have an affect on your credit score.
• Bankruptcy – This is the most serious and the final step that a consumer should consider. The consumer needs to discuss with bankruptcy attorneys all facets of bankruptcy since it will cover all debts, both secured and unsecured.
• Debt settlement – This is a program by which a third party negotiates with the lender in order to reduce the outstanding balances on unsecured credit cards.
Here is a brief overview of the debt settlement process:
• The consumer needs to have a full and complete understanding of the process. The debt settlement company needs to explain all the in’s and out’s of the program.
• A “trust/escrow” account is established an a set amount in place in the account. Normally, this is less than the combined minimum monthly payments.
• After at least half of the lowest outstanding credit card balance is in the account then the debt settlement company begins to negotiate with the lender. The debt may be reduced by up to 40 to 50 percent. In most cases, the lender would rather have at least a partial payment at one time than receive nothing if the consumer files bankruptcy.
• This process is repeated until all debts are negotiated. This process can take between 12 to 48 months. It’s not a quick or easy fix however it will assist the consumer.
