This post was written on behalf of Payplan
When debt becomes overwhelming there are a number of options available to you for eliminating debt. You can simply tighten your belt and your budget, stop getting into debt and begin paying off your debt. Easier said than done right?
When that isn’t enough to control your situation your options become a debt management plan, debt consolidation, debt settlement or bankruptcy. These options may be confusing and during an already stressful time, making a decision like this should be done with an educated mind.
Below is a description for each that should help you with the process.
Debt Management Plans (DMP) – With a DMP the person in debt works with an agency who helps facilitate an agreement between both parties that is mutually agreed upon. Often times banks and credit card companies are willing to stop the account from accruing interest and any additional fees in exchange for regular payments.
Debt Consolidation – The benefit of a debt consolidation loan is that the monthly payment is generally lower than the combined amount of all credit card payments. A debt consolidation loan is best when taken out before credit card accounts go into default.
Debt Settlement Plan (DSP) – A DSP is an option when accounts are in default. It is a benefit to both the consumer and the lending agent as it will save the consumer money while allowing the lender to recoup some of the money they have lent. A DSP is an agreement between the two entities to pay a lump amount of money and close the account.
Bankruptcy – Bankruptcy is a last resort and should only be used when all other options have been exhausted. Bankruptcy is a court proceeding that ends with most of your debt being forgiven (School loans and money owed on taxes can’t not be included in a bankruptcy).
Of course the best option is always to stay out of debt.
For me personally, I am considering a DSP now that I am earning an income. I hope to tackle one debt at a time and pay them some of what I owe. If I can not make this work then bankruptcy will be my only remaining option.
I also blog at A Five Star Life. I write about anything that comes to mind but try to focus on finding the good in daily life.
This is some great information. I hope you can make the DSP work out!
Obviously, debt consolidation is the best option because your credit remains intact. For many, though, this isn’t a possibility.