Dealing With Debt: An Overview of Your Options

If you are deep in debt, you may feel like there is no hope of getting out from under your heavy burden. However, there are many options available to you in your quest to get your debt under control. Let's take a look at a few viable strategies to help you regain control of your finances both today and well into the future.

Work With a Credit Counselor

A credit counselor can help you find ways to pay down your debts as quickly and realistically as possible. In some cases, that person may be able to help you make tweaks to your budget to reduce your expenses or free up extra cash to pay off a loan. Credit counselors may also give you tips on how to consolidate your debt at a lower interest rate or work with creditors to reduce your monthly payments.

Talk With a Debt Relief Company

A debt relief company can work as a third-party liaison between yourself and your creditors. They can negotiate with creditors on your behalf to lower the interest rate on your debt balances or work to reduce late charges or other fees that you owe. In some cases, you may have some or all of your outstanding principle balance forgiven. However, it is important to do your research before choosing a debt relief company as they can range from exceptional to nothing more than scams.

Work With Creditors On Your Own

If you are willing to do the legwork, you can negotiate new loan terms with creditors by yourself. This may be especially effective if you have a history with a lender or have a good credit history in general. Depending on your current debt situation, you may be able to get better deals by creditors by threatening to file for bankruptcy.

File for Bankruptcy

Filing for bankruptcy doesn't necessarily mean that you stop paying down your debts. If you file for Chapter 13 bankruptcy protection, you will have secured debts reorganized and paid over three or five years. However, creditors cannot repossess items or take other collection actions during the repayment period. Chapter 13 bankruptcies stay on a credit report for seven years like any other piece of information reported to credit bureaus.

If you have few assets and few secured debts, you may want to file for Chapter 7 liquidation bankruptcy instead. In a matter of weeks, you can have eligible debts discharged. Furthermore, you may not have to pay your creditors anything depending on the value of your existing assets. A Chapter 7 bankruptcy will stay in your credit report for 10 years.

Consolidate Your Debt and Get a Lower Interest Rate

You may be able to get a lower interest rate on credit card debt by transferring existing balances to a new card with 0 percent interest. You may also consolidate debt by taking out a personal loan or opting for a home equity loan or line of credit. By lowering the amount of interest paid each month, you lower your payment while also putting more of that monthly payment toward your principle balance.

Sell or Surrender Assets

Instead of filing for bankruptcy or going into foreclosure, it may be possible to negotiate a short sale of a home. The credit ramifications of doing so may be more palatable compared to bankruptcy or foreclosure. Depending on how much equity you have in the house, it may be possible to sell it to get out from your current mortgage.

If you aren't able to keep up with a car payment, some lenders will take the vehicles back at their market value. Vehicle loans may also be crammed down during Chapter 13 bankruptcy, which means that you only owe what the vehicle is worth as opposed to how much you owe on your loan. As with a home, you can opt to sell your car if it makes sense to do so.

Just because you are struggling with debt today doesn't mean that there is no hope for tomorrow. When it comes to getting a handle on your financial situation, half the battle is knowing where to turn. Whether you choose to consolidate debt with a personal loan, talk to an expert for help or work with a debt relief professional, there are many options to suit almost all debt reduction needs.