Anyone who has debt repayments greater than 20%, (excluding rent or mortgage) of their monthly salary is in a serious situation that requires immediate action. This is a simple list of alternatives to getting out of debt:
- Credit Counselling
- Debt Management Program or Debt Consolidation Program
- Dealing with it alone
- Debt Consolidation into your mortgage
- Bankruptcy
Credit Counselling
Talking to people, they often think it just leads to a debt management program, but a good counsellor will do more that just that. Credit counselling is about educating the debtor, offering informed options, helping plan for your future and creating a strategy based on your individual needs.
Expect when you talk to a credit counsellor, they will ask you questions to identify the root of your financial difficulties. Your background needs to be understood before offering any type of solution. The credit counsellor will record your details into a monthly budget sheet. The result is that you can see how much you earn in contrast to how much money you make.
When a full picture is created, the counsellor can start to identify appropriate options specific to your needs. Usually, there are a few alternatives…
Debt Management Program (DMP)
If you are able to pa off your debts, credit counsellors will ask you to consider going onto a debt management program as a means to consolidate debt payments. Saving you stress, your credit counsellor will deal with your creditors on your behalf. Counsellors will also supply education material and be a good information resource. Your debt load is consolidate into a single or bi-monthly payment to the agency. Then the agency pays all of your creditors a prorated amount each month.
Debt management plans act similar to a dedicated consolidation loan, but without the actual loan. After being declined a consolidation loan from the bank, this is often considered the next best alternative. Your consolidated amount includes a payment to the credit counselling agency.
Debt management plans save the debtor money because your case is pleaded to the creditors and asking for interest relief on your debts. Payments you make then hit the principle debt, instead of the compounding interest charges. 54 – 60 months is the usual duration for a debt management program to consolidate your payments.
Dealing with it alone
With a lower debt load, you may find that you can work over the issues yourself. To help, the credit counsellor should be able to provide some self-help educational programs on budgeting, money management, and looking after your credit. Working alone, you should negotiate with your creditors for a better interest rate. Pay off the highest interest debts first and cut up your current credit cards. This only works for the most self-disciplined of individuals.
Negotiating with creditors isn’t always easy. A good percentage of creditors will be willing to help, but you will need to ask them. Other creditors though, tend to be less relaxed and expect full payment. You need to think carefully if you can take on this job and succeed. If taking on this challenge ends up too hard for you, contact your credit counsellor and ask for more options.
Debt Consolidation into your mortgage
Typically with debt consolidation, you consolidate all your existing debts into your mortgage payment. This usually makes you have a larger mortgage payment, but sometimes at a lower interest rate. You essentially have a loan, that you use to pay off all your creditors. The loan has your home as collateral. Realise now that the loan is secured against the collateral in your house and it could be taken from you if you fall behind.
Remember that this will not solve the problem if you routinely rack up high credit card bills through compulsive spending. You also remain responsible for paying your own bills and negotiating with creditors.
Bankruptcy
Anyone should be able to tell you that this is a last resort. Bankruptcy goes through a court and is a proceeding to assist people in a financial crisis. Getting a fresh start through this process allows people to leave their debt load behind them. Although good for some situations, a lot of the debt is written off, but with that comes some very hard facts to deal with.
Many people today are filing for bankruptcy due to bad advise and the fact they are vunerable without exploring other means for debt relief. Credit bureaus keep bankruptcy on record for at least 7 years, making your financial life much harder after. If you own your home, there is the potential to lose it along with your car and other possessions. Choosing bankruptcy has to be stressed that it needs to be your last resort.
Summary
Your situation is unique, so go ahead and speak to people to find what is right for you. Talk about things with your partner or a friend if you can, but never make a decision in a panicked state. Financial stress is hard for anybody, but the sooner you do deal with it, the faster your life will be yours again. We hope that this article is a good starting point for anyone just starting to deal with their debt issues.
Related posts:
- Debt consolidation with no consolidation loan and bad credit
- Can’t get a consolidation loan? Try Credit Counselling and Debt Management
- Credit card debt consolidation pointers
- Debt Consolidation? Debt Manangement Could be a Better Choice
- Free Yourself from the Weight of Credit Card Debt with a Home-Equity Loan