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Debt Consolidation Vs Bankruptcy Which Is The

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Debt Consolidation Vs Bankruptcy Which Is The CONTENT Introduction 01. Debt Consolidation 02. Debt Settlement and Debt Management 03. Why is Bankruptcy Typically Saved for the Last Resort? 04. More Options and Tips for Winning the War of Debt INTRODUCTION When you’re facing what feels like a mountain of debt, seeing the other side can feel like an impossibility. When will you ever overcome your current situation? Is there such a thing as life on the other side of your debt? The answers to all of your questions can be found by speaking with a financial professional, but along the way, you will surely encounter numerous paths you can take to achieve your ultimate goal of being debt-free. Even with the guidance of a knowledgeable professional, it will still be up to you to decide which options are in your best interest. To do that, you’ll need to know more about each option. Here, we’ll examine some of the most common options you have when facing significant debt, including how each option impacts your life and finances for the future. Debt Consolidation Debt consolidation is one of the most popular alternatives to bankruptcy when it comes to reducing personal debt in America. However, it is not without its own balance of benefits and drawbacks. Weighing these can help a person decide whether this avenue would be a good fit for their situation. Oftentimes, consumers find that bankruptcy may be a better option. First and foremost, it’s important to know that debt consolidation involves taking out a loan to pay down the rest of your outstanding debts. These loans are easier to get than other types of loans and are exclusively to be used for this purpose. However, the fact that it is a loan at all can be a deterrent or an intimidating factor for some people already struggling with mountains of debt. Debt Consolidation Here are a few other important facts to consider when thinking about debt consolidation: • Debt consolidation creates a single, monthly payment, rather than multiple payments to multiple creditors that consumers may currently be facing. • These single payments may be significantly lower than the sum of payments they are currently paying - or they may be roughly the same. • To get a lower interest rate and lower monthly payments, you will typically have to “secure” your loan. • Securing the loan involves putting up collateral, which may include property or other valuables. • If you fail to complete payments in a timely manner, you may risk losing these valuables. • Consolidation also does not protect the consumer from default lawsuits, which can leave them vulnerable during their debt relief efforts. Debt Consolidation Perhaps one of the largest drawbacks of choosing debt consolidation over bankruptcy or other methods is that it loses its appeal very quickly. While heavy marketing and media popularity make it seem very appealing at the start, consumers often find that strict payment schedules and long, arduous journeys to a debt-free state make this method more difficult to navigate than they originally anticipated. As the risks can become very high with this type of debt relief, it is important to weigh this option carefully under the advice of a financial professional. Debt Settlement and Debt Management For those who aren’t interested in the idea of taking on new debt or taking out a new loan, debt management programs or debt settlement can be solid choices. Here’s what you need to know about these approaches to debt relief: • Debt management programs are set up and run by credit counselors. • They work with your creditors to reduce your payments and may even be able to lessen the amount of debt you have overall. • Even if your overall debt cannot be reduced, your interest rates, late fees, and other associated expenses often are dramatically reduced or completely eliminated with this approach. • This method does report on your credit ratings, as does any other debt relief program. However, it is removed as soon as you finish the program, whereas bankruptcy and other options will remain on your record for years to come even after you have paid down all debt. • Debt management payment schedules are exceedingly strict; a single missed payment can result in termination from the program and requirement to repay fees and other associated costs. Debt Settlement and Debt Management • Debt settlement companies may promise to reduce your overall debt by over 50%. • The process can take three to four years or more, depending on a variety of factors. • There is no promise of effectiveness. • Credit card companies do not have to work with these agencies and there is little recourse for consumers if they choose not to. Why is Bankruptcy Typically Saved for the Last Resort? As you’re exploring your options, you may notice that bankruptcy is regarded as a more dramatic option than most others. Why is this? As you’ll learn, it has a lot to do with what happens during bankruptcy - and afterward. There are also many misconceptions about bankruptcy, which can be put to rest by speaking with an experienced bankruptcy attorney. Why is Bankruptcy Typically Saved for the Last Resort Some important facts to know about bankruptcy include: • Bankruptcy does not wipe out all of your debt instantly. • It does freeze your debt, though, meaning creditors can no longer contact you about it. This is called an automatic stay. • How much of your debt is released by filing for bankruptcy depends on which type of bankruptcy you file for. • The type of bankruptcy you file will also depend on whether you are filing as an individual, business, etc. • This doesn’t mean your debt won’t be repaid; the point of your bankruptcy is to negotiate a plan to address your debt, not to simply abandon it. • Chapter 7 bankruptcy involves liquidation of assets in order to pay off as much of your debt as possible. • The rest of your debts may be negotiated down or released, depending on your situation. • Chapter 13 bankruptcy involves paying down your renegotiated debt over the course of three-five years and typically does not involve liquidation. Why is Bankruptcy Typically Saved for the Last Resort • Both chapter 7 and chapter 13 are used for personal bankruptcy and may or may not involve exemptions when it comes to property, valuables, income, etc. • Chapter 11 bankruptcy is typically reserved for businesses and is very similar to chapter 13. • A business may choose to carry on everyday operations as normal during these bankruptcies, or may have to downsize significantly or even close due to the situation. Bankruptcy payments boast an advantage over those of consolidation or other debt relief methods in that they are typically easier to meet financially. This is because they are customized based on what is actually available to a person from their income and assets, so they are more likely to continue making payment successfully during bankruptcy than during a consolidation. One thing many people do not know about bankruptcy is that you can begin repairing and rebuilding your credit right away during a bankruptcy. Other options - such as consolidation - do not allow you to work on your credit during the debt relief process. This means that you’re stuck handling one step of the process at a time, making it much longer than it may advertised to you as. While it may take multiple years for a bankruptcy to be worked through, you’re doing just that - working throughout the length of it - to rebuild your financial life as you go. More Options and Tips for Winning the War of Debt It’s important to remember that while paying down debt is a practical process and should be regarded as such, it can also be a very emotional journey for many people. When you’re looking to pay down debt, it’s usually in preparation for a major change in your life or to move on from something that has caused damage in the past. When emotion is involved, it’s easier to make irrational decisions, so taking your time and following the advice of professionals throughout your debt- free journey is critical for achieving success. To keep the balance of practical accomplishment and emotions in check during your debt-free journey, consider prioritizing your debt pay-down to give the most gratifying results, rather than simply the most practical. What does this mean? More Options and Tips for Winning the War of Debt Here are a few examples: • If you have two $500 debts to pay down or a single $1000 debts to pay down, you may choose to pay down the two $500 debts first in order to feel more accomplished emotionally. • While debts with higher interest rates should typically be paid down first, debts in smaller amounts can be paid down quickly and give consumers a feeling of accomplishment right away, keeping them motivated to continue their journey. These types of changes to your debt pay-down plan should only be made with the advice of your financial professional, of course. However, working together with your bankruptcy lawyer will give you the chance to voice your own opinions and concerns and do what feels most motivating for you. At the end of the day, whatever is getting you to that endpoint in your debt-free journey is the best choice. Knowing your options along the way will simply help you make the smartest choices throughout the path to get there. Knowing your options will help you make the smartest choices. Call us at our Fort Lauderdale or West Palm Beach office.
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