Debt Problems

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If you have difficulty making the monthly payments on your debt, you may wonder what you should do to alleviate your debt problems. Depending on your situation, several options may exist including debt consolidation, creating a debt management plan, or filing for bankruptcy. 


For many, debt consolidation can help solve debt problems. Debt consolidation allows you to lower your total monthly payments by consolidating the debt into one payment. In addition, if you are able to use your home as collateral, you may qualify for a home equity line of credit or second mortgage to consolidate your debt into one low rate. However, if you fail to make a payment on the loan, you risk losing your home. In addition, debt consolidation can be expensive. Therefore, you should weigh all of these factors before deciding to consolidate your debt to eliminate your debt problems. 


In addition, a debt management plan, or DMP, can help you with your debt problems.  Most credit counseling agencies will help you enroll in a DMP. When selecting a credit counseling agency, choose one that is a non-profit agency that does not charge you an upfront to get started. Most credit counseling agencies will sit down with you for a free consultation to discuss your entire financial situation. In a DMP, your pay your credit counseling organization a specified amount of money each month that is then used by the organization to pay your debts. The payment schedule will be negotiated between the credit counseling organization and your creditors. A DMP can take 48 months or more to complete, and it may be necessary for you to agree to not apply for additional credit or use any existing credit throughout the life of the DMP. Usually, a DMP is appropriate for unsecured debt only, like credit card debt or medical bills. Your creditors may agree to waive some fees or even lower your interest rates if you create a DMP. However, a DMP is not the right solution for everyone, therefore it is important that the credit counselor carefully reviews your financial history. For more information about DMP’s contact the Federal Trade Commission’s website http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.shtm


Bankruptcy can be a good option for individuals facing debt problems. In the United States, consumers can file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is a liquidation proceeding that involves the bankruptcy trustee selling all non-exempt assets. A Chapter 7 bankruptcy is fairly straightforward and is usually completed in 3 to 4 months. However, if you have assets that you would like to keep, you may be eligible to file for Chapter 13 bankruptcy. During a Chapter 13 bankruptcy you create a repayment plan. The repayment plan will take between 3 to 5 years to complete, and you will make one monthly payment to your Chapter 13 bankruptcy trustee. Unfortunately, to be eligible for Chapter 13 bankruptcy you must have regular income for at least 6 months prior to filing for bankruptcy. In addition, while a Chapter 13 bankruptcy allows you to keep your assets, it can take 3 to 5 years to complete. Whether you file for Chapter 7 or Chapter 13 bankruptcy, at the completion of your bankruptcy all debts included as part of the bankruptcy case will be dismissed and no longer enforceable by your creditors. However, filing for bankruptcy can be expensive. Therefore, visit www.uscourts.gov/bankruptcycourts/fees.html to determine how much it will cost for you to file for bankruptcy.