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Not All Paths Are Equal

Posted by Advocate Debt Relief Team

10 months ago / January 20, 2022

Different Paths To Getting Out Of Debt

Working with a debt relief professional is a viable means to pay down your debts. Following the wake of the recession of 2008 there were many who were left in deep debt and found themselves taken advantage by predatory lending practices. A reputable debt relief company can help you out of debt without preying on your situation.

Debt settlement as a top choice.

Debt settlement is a proven program that has been around for 40 years, well realistically, it’s been around since the dawn of time.  Negotiating debt is an effective way to reduce the overall amount you pay, the monthly obligation and on top of that speed up the time frame to eliminate the debt in your life.  The key functions of a good debt settlement program includes working with a company who has a proven track record.

In addition to experience you want to work with a company that has a no advance fee business model. This means they are not paid until the successfully negotiate a debt.  Then and only then will funds be released from your client escrow account.  The beauty of this path for the end consumer, is you are fully protected.  You are in control and you will come out the other end, debt free, paying less then you owe and paying no more interest.

Debt consolidation as another option.

The process of debt consolidation is a good way to get yourself out from under the crushing weight of debt, but it is not stopping you from using the credit you have. You can still use your credit card during the process which means if you fail to chip away at your debts during a balance-transfer cards low, or no interest promo period you will still have the debt when you come out the other side.

The challenge with this is that you need to be able to qualify for a loan and continue to make the payments on that loan.  In addition, you’re going to end up fully paying the debt you owe plus the new, hopefully lower interest rate.   While this is a path, it is not the most effective and efficient way to eliminate debt.

There are a few different types of loans when it comes to debt consolidation. In most cases  they are marketed as a debt consolidation loan, or are simply a good option for consolidating your debts into one place.

Home equity loan

If you own property and have outstanding personal loans or credit card debts, you can take out an equity loan which will use your home as a form of collateral.  However, you want to be careful, now your “home” is securing what once was an unsecured debt.  Often times people find themselves back in credit card debt once they have cleared the cards with the HELOC.  The old saying goes, you can’t borrow your way out of debt . . . . this is true.

Unsecured personal loan

Although it is harder to get approved for this type of loan for the full amount you Owe, it is one of the few that will let you do it solely on your own.  These are usually unsecured which means that there is nothing to put up for collateral.  Which depending on your situation, might be your only option.  The reality, in today’s lending world, if you’re eligible for this type of loan, more than likely you’re in a good place with your debt and not struggling.

Balance transfer credit card

While this is not a loan, it is one of the options you are going to see and have marketed towards you, so it is best to know what it is. This allows you to put your  multiple debts onto one card that usually has a period of time that has low interest, or in some cases, no interest. Keep in mind that if a balance remains after the introduction period, you will usually have a high interest rate tacked onto your balance each month.

Bankruptcy

Chapter 7 bankruptcy involves discharging all qualifying debts so that you no longer have to make payments. In order to qualify for Chapter 7 bankruptcy, you must undergo a means test, during which the bankruptcy court will determine your ability to repay your debts. If you earn less than the average for your state and cannot afford to pay a minimum monthly payment, you may qualify for Chapter 7 bankruptcy.

If you do qualify for Chapter 7 bankruptcy, you will be forced to liquidate all non-exempt assets to help pay your creditors. Assets exempted from liquidation include your primary residence, tools, work equipment, vehicles, and certain items of personal property.

A discharge typically eliminates unsecured debts like credit cards, medical bills, personal loans, car accidents judgments, some tax debts, and garnishments. Non-dischargeable debts include child support, most student loans, and most tax debts.

Chapter 13 bankruptcy involves restructuring your debts and making an affordable monthly payment to a court-appointed trustee for 3-5 years. Your debts are not discharged in Chapter 13 bankruptcy. Yet the amount you pay is determined by subtracting reasonable living expenses from your income, so your payments are affordable. Chapter 13 bankruptcy may be your only bankruptcy option if you earn more than the average in your state or if you are able to pay a minimum monthly payment.

Chapter 13 bankruptcy may be a good option if you simply need to stop all collections and legal action and restructure more affordable payment arrangements. Chapter 13 bankruptcy may also be a good choice if you’ve suffered short-term financial setbacks as a result of illness, job loss, or unexpected expenses.

Debt Coaching

If you wanted to lose weight, gain muscle and increase your athletic performance, you’d talk to a personal trainer.  If you wanted to learn Yoga, you’d work with a Yoga instructor. You get the point, success in any endeavor is more likely when you model the appropriate behavior that has a track record of success.  Tackling your debt is no different. You need to take action, to get out of debt as quick as possible, saving as much as possible, all while keeping your monthly payment as low as you can.

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