Debt Repayment appears to be a no-brainer, and we should all endeavor for it if we have the means to do so. However, general unsecured credit card debt repayment is the lowest budget priority, and should not be paid if there is no money left over. The discipline required to adhere to a strict budget will pay off when the debt is eliminated without registering for bankruptcy. I recommend Dave Ramsey's Total Money Makeover-based program for eliminating debt through repayment.
Debt settlement involves negotiating with creditors to pay back less than you due. Typically, the debt is already past due, which has a negative effect on credit scores. Debt negotiation can save you fifty percent of what you owe. A pitfall exists when settling debts for less than what is obligated. You may end up owing income taxes on the cancelled debt, which is a potential pitfall. Another disadvantage is that it may take longer for your credit score to increase when debts are settled and the creditor updates information with the settlement payment.
Be certain that you are legally obligated to repay any debt prior to doing so. Statute of Limitations is the legal term for state statutes that limit the amount of time a creditor has to file a lawsuit. In California, a documented contract (such as a credit card application) has a four-year statute of limitations. After that point, you are no longer legally obligated to repay the debt, unless the creditor has successfully sued you and obtained a court judgment. Obtaining assistance from a Credit Counseling Agency is beneficial for individuals who are uncomfortable negotiating with their creditors.
Sometimes doing nothing is the best course of action. If you receive Social Security disability benefits or own nothing of value, it is unlikely that creditors will be able to collect anything from you. If you are """"judgment proof,"""" you may not be required to repay your debts or declare bankruptcy. However, this strategy does not apply to child support obligations or taxes.
Refinancing the mortgage to pay off debts or consolidating debts are less-than-helpful alternatives to bankruptcy. In essence, taking out a new loan to repay previous debts does not eliminate the debt. However, these actions may be prudent if they reduce the interest rate or provide a tax deduction, such as a mortgage. Otherwise, additional debt is not the solution.""
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