Debt Consolidation, Debt Management, Debt Settlement vs. Bankruptcy- Which Way is Best?
Are you struggling with debt? Many Americans struggle with debt every year. Looking for the best way out of debt can be exhausting and time consuming. The most common ways out of debt are debt consolidation, debt management, debt settlement, do it yourself, and bankruptcy. As to debt consolidation, management and settlement companies, be careful, there are many unreliable and even predatory companies that will take advantage of you. We advise you to consult with a knowledgeable attorney before you decide.
DEBT CONSOLIDATION
Debt consolidation may mean getting a new loan to pay off your existing debts. The term “consolidate” means to group several things together into one. Doing this may lower your monthly payment and interest rate.
The problem with debt consolidation is you have not reduced your amount of debt, you have simply lumped all of your debt into one loan with one payment. You are still accruing interest on your high balance and it may take years to pay off this loan.
DEBT MANAGEMENT
A debt management plan is a program offered by companies or non-profit groups that say they will help you negotiate a new payment plan with your current creditors. The debt management company may negotiate your debts with your creditors and you will make a monthly payment to them directly on your behalf.
There are several problems with these debt management plans. Unfortunately, not all of these companies are honest about what they are selling and how they distribute your funds. We have had many clients tell us that they paid one of these companies for years without ever seeing their balances go down.
DEBT SETTLEMENT
Debt settlement occurs when you work directly with your creditors for lower payments or amounts due. Usually, you must have that full amount to immediately pay. This can be good if you have the funds to pay.
Even if you do have the funds for debt settlement, not all creditors will work with you. Creditors who do reduce your debt will send you a 1099 tax form and the forgiven amount is treated as income to you. You will likely owe the IRS a part of the savings of debt settlement.
DO IT ON YOUR OWN
If you don’t have much debt and can tighten up on your expenses for a short period of time then this can work. Start by paying extra on your high interest debt while paying minimum on other debts. When that debt is paid off then snowball the funds into the next highest interest debt. This is not an option if you can only make minimum payments.
BANKRUPTCY IS OFTEN THE BEST OPTION
There are hundreds of thousands of bankruptcies filed in the US each year. Most are filed by families.
Bankruptcy is often the fastest and easiest way out of debt. Creditors can refuse to participate in consolidation and debt management cases but they cannot refuse to participate in a bankruptcy. Bankruptcy filing will stay on your credit report for up to 10 years, but all of the options above will affect you for about the same amount of time. The key to credit after bankruptcy is paying all your debts on time, and careful consideration of any future debt. You will be able to get new credit rather quickly if that is what you desire and can afford. Under federal bankruptcy protection you can protect your assets and wipe out your debts. There are no negative tax implications for discharging debt in bankruptcy.
MORE INFORMATION
Call 513-752-3900 today for your free consultation with an experienced attorney and then decide for yourself if bankruptcy is your best way out of debt. Keegan & Company Attorneys is located in Eastgate and Middletown, Ohio. Since 1992, our experienced lawyers have helped people protect their hard earned assets and wages and obtain relief from overwhelming debt. Our office helps consumers get financial relief through the use of Bankruptcy.
