In terms of debt relief, there is no one-size-fits-all solution. Everyone's financial circumstance is unique and may necessitate individualized approaches. Educating yourself on your options is therefore the best place to start.
Management plans come in various varieties, but the ""debt snowball"" is the most widely recognized. This strategy details a plan to attack one of your debt sources with as much money as possible each month, while maintaining minimum payments on your other credit lines. The goal is to pay off a line of credit much more quickly by paying more than the minimum payment. After this line of credit has been paid off, you will focus on another line of credit until it, too, has a negative balance. Typically, you begin with the line of credit with the maximum interest rate to minimize any unnecessary long-term interest fees. Others, however, choose to begin with the line of credit with the smallest balance and increase as each account is paid off.
Consolidation -- refers to the process of combining multiple debts into a single loan with a single monthly payment. The consolidation loan pays off all your debt accounts, allowing you to close them if you choose, while maintaining a single loan balance. By having one loan payment per month as opposed to multiple, you can reduce the interest fees that often keep you turning your wheels in your efforts to pay off debt. Obtaining a favorable interest rate is one of the risks people face when contemplating a consolidation loan. If you consolidate all of your balances into one large balance with a high interest rate, the resulting monthly payment may be unaffordable.
Settlement -- is a negotiated agreement between you and your lender that reduces the total amount owed in exchange for a one-time flat sum payment. Instead of paying minimum payments on a $10,000 credit card bill for years to come, a lender may agree to accept $2500 and forgive the remaining balance if you pay the full $2500 in one check. (1) Debt settlement negotiations can be taxing; many creditors play hardball and require a ton of effort and proof of financial hardship on your part in order to concur; and (2) the majority of individuals lack the funds to make the lump-sum payment. Additionally, some debt settlements are reported on credit reports as ""settled"" rather than ""resolved"" or ""paid,"" which can harm credit scores.
In bankruptcy, debts can be eliminated in one of two methods. A Chapter 13 bankruptcy is comparable to consolidation in that all of your eligible obligations will be consolidated into a single monthly payment. However, not every debt is included and not every creditor is paid. Who is paid and how your repayment plan is structured are determined by the court. This process typically lasts between three and five years. In Chapter 7 bankruptcy, debts are discharged after nonexempt assets are liquidated to pay off creditors. Again, not all balances are paid in full, nor are all creditors paid. A substantial portion of your personal property is protected by bankruptcy exemption laws, and you also receive the added benefit of having all debt collection actions halted while your accounts are resolved. If you are at risk of repossession or foreclosure, bankruptcy can suspend the process while the court determines your payment plan.""
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