Do You Really Need Debt Settlement?
By LaToya Irby in Credit Counseling Debt Consolidation Debt Relief
Debt settlement is just one of several options for dealing with debts, and may not be best suited for everyone. There are a few alternatives to debt settlement, so before you go through with debt settlement, and deal with the possible negative side effects, it’s important to make sure it’s actually what you need for your debt.
Can you afford to make your minimum monthly payments right now?
If you’re comfortably making the minimum monthly payment on your credit cards each month, then debt settlement may not be the solution you need. By paying the minimum on your credit cards, you’re probably not hurting your credit score. When you stop making these minimum payments, which is almost always a condition for debt settlement, your credit score will likely suffer.
If you’re making the minimum payments and you can afford to make a little more, then you might consider a debt snowball where you send a higher payment to one of your credit cards each month (while making the minimum on all your others) until that card is paid off. Then, you’ll do the same thing for another credit card. Repeat until all your cards are paid off.
When you’re making your minimum payments, but feel the pinch in your budget, you may consider consumer credit counseling. Credit counseling agencies talk with your creditors to negotiate a lower interest rate and minimum payment. Then, usually you make a lump-sum payment to the credit counseling agency who, in turn, pays your credit card bills each month. Your credit score should not suffer and you could stop the program at any time and resume your own get-out-of-debt plan.
Can you consolidate with home equity loan?
Under most circumstances, it’s a bad idea to consolidate your unsecured debt with debt that’s secured by the equity in your home. That’s because after bankruptcy, you could be release of your unsecured debt obligations, while you’ll almost always have to repay secured debt even if it’s under a bankruptcy repayment plan.
But, if you’re having trouble with your credit card payments and your options are to file bankruptcy, settle your debts or consolidate with a home equity loan or second mortgage, consolidating may be the better option. It’s the only option that probably lets you save your credit score. You have to make sure you can afford to keep up with your regular mortgage and the home equity loan payments too. If you fall behind on either, you risk foreclosure.
When All Else Fails
You may really need debt settlement when you can’t continue making your minimum payments and you don’t have any assets you can sell or use to pay off your debts. If you’ve exhausted all your options and you’re faced with filing a Chapter 13 bankruptcy or debt settlement, then debt settlement is probably the better of the two. In a Chapter 13 bankruptcy, the court reviews your finances, they essentially decide how much of your income you should spend on living expenses and how much you should put toward paying your debts. Settling your debts can keep you in control of your finances and your debt.