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Home Equity Loan Warning: Low interest rates may be tempting, but remember if you use a home equity loan to pay off credit card debt, you’ll be paying it off for 30 years, and you’ll actually pay much more in interest than if you simply paid more on your credit cards. Regardless of the tax deduction advantages, using this method to consolidate your debt also endangers your house. If you’re unable to pay your higher mortgage payments, you could not only lose your credit rating but your home!
b. Reduced Payment Settlement
If you cannot make even the minimum payments, you or your debt manager may choose to try and persuade your creditors to accept one of three options: either you temporarily get the creditors to accept even less than the minimum payment for an agreed upon length of time; or to accept less overall—anywhere from 75% to 50% of your original debt; or get the creditor to agree to lower or even eliminate the interest charged.
Remember these arrangements often result in your debt being reported to the credit bureau as “paid,” not “paid as agreed,” which shows you had to settle instead of paying off the full balance. These notations remain on your credit record for 7 to 10 years and could affect your ability to get credit in the future.
If you decide to utilize a reduced payment settlement, you need to get in writing the negotiated payoff balance, method of payment, time frame the offer is valid, how it will be reported to the credit bureau, and the name of the person approving the negotiation on behalf of the creditor.
Note: Reduced settlements do not protect you from creditors turning over the unpaid amount to a collection agency who will continue to try to recover the loss.
5 Bankruptcy—The Final Option
This option is a last resort for when you’re in financial crisis, and your situation is such that you cannot even afford to make reduced payments. It’s a good idea to utilize the services of an experienced bankruptcy attorney. You’ll find it valuable to shop around and get his fees in writing. A bankruptcy proceeding is entered into voluntarily by a debtor. After a bankruptcy proceeding is filed, for the most part, creditors may not seek to collect their debts outside of the proceeding.
REMEMBER: Bankruptcy laws are subject to change. You need to consult a qualified attorney regarding current bankruptcy terms. The following descriptions are for informational purposes and are not to be considered legal advice.
Options for Eliminating Your Debt
“Put not your trust in money, but put your money in trust.”
~ Oliver Wendell Holmes, Sr.
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