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A Quick-Reading Article to Help You Choose the Right Debt Relief For You

You want to get debt relief now. This article strips down all of the rhetoric about debt relief options into quick questions and answers that will help guide you to a debt relief solution suited to your needs.

To start, look in the table below and pick the selection that best fits your situation and goals:

If none of the above situations describe you, go to the Bills.com Debt Coach for a more sophisticated analysis. Debt Coach is a no-cost, no-gimmick online tool where you select options to describe your goals and needs, enter a little information about your debts, and then see an instant cost analysis of each of your debt resolution options.

Debt Settlement: A Fast Solution

If you need an easy way to remember debt settlement, think of the phrase, "Let's make a deal." In debt settlement, that's what your debt settlement provider does — makes deals with creditors for lump-sum settlements on your accounts. Here is how it works:

1. You stop paying your enrolled creditors
2. You make monthly payments into a special bank account
3. A negotiator at your debt settlement company works out lump-sum settlements with each creditors

The advantages of debt settlement are:

• Shorter time to debt freedom than making minimum payments or credit counseling
• Lower monthly cost than minimum payments or credit counseling
• Avoids creating a public record like bankruptcy
• Does not require a minimum credit score to qualify
• Lighter credit score impact than bankruptcy

Debt settlement has disadvantages, like other debt resolution strategies. These include:

• Will need to deal with calls from creditors trying to lure you away from debt settlement and back into making minimum payments
• May result in litigation from aggressive creditors
• Will cause a negative impact on your credit score

The credit score issue often causes people to be leery of debt settlement. Your credit score is an important issue if you plan to apply for a vehicle or mortgage loan in the next 2 years or so. However, if you have no big purchases requiring a loan on the horizon, then your credit score should not be an important issue for you.

Credit Counseling: A No-Hassle But Expensive Plan

Credit counseling is payment consolidation: You make one payment to a credit counseling agency, which splits up the payments to your enrolled creditors. Here is how it works:

1. You talk with a credit counselor and set up a household budget
2. Your credit counselor talks to your creditors to set up a debt management plan (DMP)

The advantages of a debt management plan and credit counseling are:

• No collection calls from creditors
• Potential for less impact on your credit score than bankruptcy and debt settlement
• Avoids creating a public record like bankruptcy
• Does not require a minimum credit score to qualify

Credit counseling has disadvantages, like other debt resolution strategies. These include:

• High monthly cost — about 3% of your total debt balance
• Long program length — 5 years
• Low success rate — about 1 in 5 credit counseling customers succeed

Refinance: Consolidates Your Debt at a Cost

A cash-out home or vehicle loan refinance replaces an existing loan with a new loan that has a larger balance. The extra is given to the borrower to use as they wish, including paying off other debt.

The advantages of a refinance are:

• Low monthly cost due to low interest rate and long term
• No credit score harm

Refinances have disadvantages, including:

• You must own a home or vehicle with equity
• You must have a high credit score to qualify for a new loan
• A default will cause a repossession or foreclosure

A refinance is a true consolidation loan — it combines several loans into one. The long-term cost of a refinance is daunting, as is the risk a person creates by adding to the debt load of their vehicle or home. Accordingly, consider a refinance carefully.

Bankruptcy: May Cancel Qualified Debt Quickly

Two types of bankruptcy are available to most consumers — chapter 7 and chapter 13. Chapter 7 cancels qualifying debts immediately. Chapter 13 is similar to credit counseling in that you are placed in a 5-year plan. Unlike a credit counseling, however, the bankruptcy court may discharge the remaining debt at the end of a chapter 13.

The advantages of bankruptcy are:

• A "stay" stops creditors from taking any actions starting the moment the person files the paperwork with the bankruptcy court.
• A chapter 7 is the fastest way to debt freedom
• A chapter 13 strips liens from second mortgages
• Either will remove liability for mortgages and other secured loans
• No minimum credit score is required
• No income is required

Bankruptcy has disadvantages, too, including:

• It creates a public record of your filing
• The damage to a credit score is sever and appears on a credit report for 10 years
• You must qualify for chapter 7, and if you don't, you are put into a chapter 13

Consult with a bankruptcy lawyer to learn if a chapter 7 or chapter 13 is the right option for you.