Compare Your Debt Help Options for Becoming Debt Free
If you’re in debt, you probably need to get debt help to get yourself debt free and back on solid financial footing. Unfortunately, it can be confusing to compare all of the debt help options out there and the words are confusing and can all seem the same. The good news: Bills.com can help you evaluate your debt help options, from debt consolidation loans to credit counseling to debt resolution. If you really want to get your finances back in order and your creditors off your back, you need to:
- Establish a plan
- Know your options
- Start paying off your debt
- Get a Debt Help Savings Quote
Bills.com has all the debt help resources and information you need to start tackling your debt. We even have a Debt Help Savings Center that will help you find the best solution for consolidating and paying down your debt, whether that is debt consolidation, credit counseling, debt settlement or other forms of debt help.
Bills.com will help identify what options you have and which ones are best suited to help you tackle your debt. Browse through our articles, debt help guides, and debt relief tips and get all the information you need to get debt help. Check out the resources links and tabs to the left to see all of the debt tips and guides available to you.
Ok, so what are the main debt help options, and which is best?
There is no one-size-fits-all debt solution out there, so it's important to understand your personal financial situation and what your goals are. Only after getting your own goals prioritized should you pick a debt solution or a provider. To get you started, there are four primary concerns for most consumers that are seeking debt consolidation advice:
- Monthly payment
- Time to debt freedom
- Total cost
- The credit rating impact of the debt consolidation program.
Be sure to evaluate each program relative to your prioritization of these factors — as not all programs are equal and not all are well suited to each consumer.
Debt Help Option #1: Debt Consolidation Loan
If you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. However, be careful before you borrow money against your home to pay off credit cards and unsecured loans; you are converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully — the Bills.com Savings Center is a great resource to help you find a lender for this type of loan.
Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: Free Refinance Quotes.
Debt Help Option #2: Credit Counseling
Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
Debt Help Option #3: Debt Settlement
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 3-4 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also get you set up with a low monthly program payment, however you are making these special savings deposits in lieu of making minimum monthly payments... so you are NOT making payments to your creditors, which has negative consequences. There is one major drawback to debt settlement programs — they will significantly damage your credit while in the program and for at least a few years afterward. You will also be exposed to your creditor's collection efforts, including letters calls and possible lawsuits. However, if you are currently unable to afford to pay your creditors, the hit to your credit and the negatives may be worth the benefit of ridding yourself of credit card debt.
Debt Help Option #4: Bankruptcy
Bankruptcy may also solve your debt problems, but is a very different form of debt help (and not really considered debt consolidation). A Chapter 7 bankruptcy is a liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect, it is much harder to qualify for Chapter 7 bankruptcy, and many families are forced to file for Chapter 13 bankruptcy where you repay a portion of your debts over an approximately five year period. If you are considering bankruptcy, you should always meet with a qualified bankruptcy attorney in your area.
Debt Help Option #5: Default
Some people wonder what would happen if you do nothing. If you stop paying your unsecured debts, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.
Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening. Thankfully, the Fair Debt Collections Practices Act has rules governing the behavior of collection agents. However, unscrupulous debt collection agents do not follow these rules.
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against the debtor. This is not a frequent occurrence, but it is within a creditor's rights and a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor’s favor. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment. Seek advice from an attorney if you are concerned about these specific consequences, or review the state guidelines that we have prepared on collection laws and statutes of limitations.
Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result doing nothing and allowing default is a poor option for most consumers.
Summary
Although there are many forms of debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation option that fits for you.
Lastly, here are some fast tips for your own quick Debt Consolidation Evaluator:
- If you have perfect credit and have equity in your home — consider a Mortgage Refinance.
- If you can afford a healthy monthly payment (about 3% of your total debt each month) and you want to protect yourself from collection and from going delinquent — consider Credit Counseling.
- If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND you are willing to deal with adverse credit impacts and collections — then evaluate Debt Settlement.
- If you cannot afford anything in a monthly payment (less than 1.5% of your total debt each month) — consider Bankruptcy to see if Chapter 7 might be right for you.
Bills.com makes it easy for you to apply for debt relief with pre-screened debt relief providers. If you want to see a very innovative side-by-side comparison, including a chart comparing payments, cost, time and success metrics then check out our Debt Options Whitepaper.
Depending on your income and amount of debt, one of the several options I have described above may be able to help you. I encourage you to explore Bills.com to read more about these and other options available to you.
9 Comments
A collection agent or original creditor working on a debt older than a state's statute of limitations may contact the consumer to attempt to collect the ancient debt (except in Wisconsin). It can even file a lawsuit against the consumer. However, the consumer has an affirmative defense if there is such a lawsuit. If the affirmative defense is successful, then the court will dismiss the case.
My advice? Given that you are nearing the 7½-year mark, I would let sleeping dogs lie — leave the accounts alone, and focus on building strong accounts that boost your credit score.
I recommend that you speak with a bankruptcy attorney and a debt settlement company, to better understand your options.
Keep in mind that if you call the collection agencies up in a good-faith attempt to work out a payment plan, they can decide to accelerate collections against you. You may just end up shining the light on yourself, if you reach out to them.
Please make certain that there is no language in any settlement paperwork or in your original agreement with your creditor that would allow the creditor to recoup any monies from you, should you come into a windfall within a specified period of time. Such a clause is not common, but I have heard of agreements that included it.
The very issues your question raised can be a good reason to consider hiring a professional debt settlement company. When you are comparing your debt help options and trying to find the best solution for your debt problems, it is worth while to consult with some firms that resolve debt professionally. I suggest that you speak with one of bills.com's debt settlement partners, to hear how their debt settlement program would handle your case. At the very least, you can ask questions and more fully inform yourself.