If the recent recession has taught us anything, it is that getting out of debt is most times not worth the reason that we got into it in the first place. And to those who have been or are in debt, the consequences are not just financial.

Getting into debt and not being able to get out will reorder your priorities. You will find out that the creditors who were so happily facilitating your financial needs will become less than pleasant and wreak havoc on your credit. You will suddenly be hearing about all of the rules in the fine print that you never knew were there. You will hear how it is impossible to do certain things, when everything was quite possible before.

Not being able to get out of debt also affects the peace of mind of everyone around you – you are unable to provide for your loved ones; friends grow distant and standoffish; your social life becomes more limited.

Many people simply do not know their options for how to get out of debt. Below is a description of those options. You can find detail descriptions and tips on Debt Consolidation, Debt Settlement, Debt Management, Self Repayment Plan / Credit Counseling, Bankruptcy, Money Management in the category section (Above and right hand side of the navigation bar)

Debt Consolidation

The term debt consolidation describes the process of taking out one loan in order to pay off many loans. The multiple loans are consolidated, or combined, into the one.

Debt consolidation is often a way for a debtor to ensure themselves a lower interest rate, to secure a fixed interest rate, or for added convenience, because only one loan must be serviced instead of many.

The most common form of debt consolidation is secured debt consolidation, or a consolidated loan that is guaranteed against a large asset, such as a house or automobile. For example, consolidating a secured loan against a house would mean taking out an extra mortgage on the asset. If the first mortgage on the house is not paid off before the loan is consolidated into the asset, that mortgage is known as a second mortgage.

In the case of a secured consolidated loan guaranteed with a house, failure to repay that loan would result in the foreclosure, or the forced sale, of the house.

Advantages of Debt Consolidation

The advantages of choosing debt consolidation as your way to get out of debt include:

1. A lowered risk to the lender, which is passed on to the debtor in the form of a lower interest rate
2.  The convenience of only having one bill to pay
3.  Securing a fixed interest rate
4.  The waiving of many late fees
5. Reducing the amount of collection calls
6. A lower single monthly payment (as compared against the total value of the unconsolidated loans)

 

Disadvantages of Debt Consolidation

The disadvantages of choosing debt consolidation as your way to get out of debt include:

1.  A larger total payment. Many times, a debt consolidation means that the loan will take longer to pay off to get out of debt, resulting in higher interest.
2. The inconvenience. Some debt consolidation companies will charge a fee for early payment of a consolidated loan. Be sure to check to see that you have a company without fees to get out of debt more efficiently.

Who Should Use Debt Consolidation to Get Out of Debt?

As debt consolidation is often used to lower interest rates and total monthly payments, the people who choose debt consolidation are often choosing a larger cash flow per month in exchange for a larger total payment. Debt consolidation tends to work best for people with cash flow problems, such as:

1. Students. Student loans are often consolidated, if the student can not find a job or if the student must take a job out of school with a smaller entry level pay, but with the possibility of larger paychecks down the line. Students may also take advantage of a federal student loan consolidation, in which existing student loans are purchased by the Department of Education.

2. People in debt because of credit cards. Those who owe money to credit cards, which is a type of unsecured loan, often find success in getting out of debt with a consolidation loan. Many times, a credit card interest rate is much larger than an unsecured loan from the same financial institution. If the creditor is willing to take on a consolidation loan which is also a secured loan, this interest rate can be placed even lower. In some cases, this allows the debtor to pay less than he or she would with a credit card, as the total cash flow and total interest paid toward the debt will be lower.

Go To Debt Consolidation Section and Find Out More Info, Tips And Strategies on Debt Consolidation

Debt Settlement

Debt settlement is often confused with debt consolidation, but there are not the same thing. Debt settlement can also be known as credit settlement, debt arbitration, or debt negotiation.

Debt settlement is the process of agreement between a creditor and a debtor in which the debtor will pay a lower balance, which the creditor will consider as a full payment.

The Differences Between Debt Settlement and Debt Consolidation

1. Debt consolidation requires the debtor to make monthly payments which are passed on to actual creditors; debt settlement requires monthly payments as well, but the majority of that money is placed into a trust account. The creditors must agree to settle, usually for a lower total payment, to receive the payment of this money.

2. In debt consolidation, debtors make payments directly to companies. In debt settlement, the debt settlement company will often advise that the client make no payments to his or her creditors.

The Advantages of Debt Settlement

The advantages of choosing debt settlement as your way to get out of debt include:

1. Debt settlement can be done without hiring an outside company. Many, though not all, financial institutions will accept a large lump sum payment which is lower than the total amount owed as payment in full. A debtor must usually be behind on payments before a company will consider debt settlement.
2.  A reputable debt settlement company has already created relationships with creditors, meaning that if the do it yourself debt settlement option does not work to get out of debt, a debt settlement company can bundle your loan with others and force a payoff, resulting in a 35-50% discount of your total bill.
3. In debt settlement, the debtor usually retains much more control over the process than with debt consolidation.

 

The Disadvantages of Debt Settlement

The disadvantages of choosing debt settlement as your way to get out of debt include:

1. Do it yourself debt settlement options often result in worse results than in hiring a debt settlement company to get out of debt
2. If the creditor escalates the process into a legal one, debtors will often have to retain a lawyer, which may nix any financial advantage the debtor has
3. Debt settlement, although sometimes effective to get out of debt, can damage credit because of the time involved in the process, during which the debtor is becoming late on payments
4.  Many debts are not eligible for debt settlement
5. Any cancelled portion of a debt settlement must be reported as taxable income, as the Internal Revenue Service considers a forgiven debt or portion thereof as taxable income. The creditor will provide the debtor with a 1099-C tax form for any amount of debt forgiven that is $600 or greater.
6. The Better Business Bureau automatically downgrades any business which defines itself as a debt settlement company because of concerns of malpractice within the debt settlement industry.

 

Who Should Use Debt Settlement

1. Those who have large lump sums. To get out of debt using the debt settlement method, creditors will require a large lump sum. The larger the sum, the more likely that the creditor will negotiate.
2. Those with knowledge of financial matters. As debt settlement is a more do it yourself way to get out of debt, those with knowledge of financial matters or the time to research them may fare better using that method.

Click Here Find Out More Information & Articles On Debt Settlement

Debt Management (DMP)

A debt management, or DMP, plan, means to involve a third party to renegotiate payment terms on behalf of a debtor with a creditor. Renegotiation is based upon a higher probability of repayment.

Advantages of Debt Management

The advantages of choosing debt management as your way to get out of debt include:

1. Lower fees than debt consolidation or debt management companies. As a debt management company does not handle any finances, they are often the cheapest way to hire a third party to help a debtor get out of debt.

Disadvantages of Debt Management

The disadvantages of choosing debt management as your way to get out of debt include:

1. Many types of loans, such as mortgages, automobile payments, utility bills and rents, are not eligible for a debt management program.
2. Many creditors will issue a Default Notice upon a debtor who chooses to participate in a DMP, which can affect chances for being accepted for future credit. It is often not reported to the credit bureaus, however.

Who Should Use Debt Management to Get Out of Debt

1. Those with less serious, but mounting, problems. Debt management costs less to get out of debt, but problems must be caught early.
2.  Those with unsecured debts. As most types of secured debts are not eligible for debt management, those who need to get out of debt with credit card companies, retail credit cards, personal loans, or bank overdrafts.

 

Self Repayment Plan / Credit Counseling

 

A self repayment plan includes any way to get out of debt that is completely self initiated and managed.

Credit counseling refers to hiring a third party to advise how to get out of debt, but this counselor does not usually speak with or try to negotiate with creditors.

Many people who do not wish to pay the fees of debt consolidation, debt management, or debt settlement programs will often use a self repayment plan or obtain credit counseling to get out of debt. These methods are most successful when used at the early stages of a debt problem, and work most effectively with unsecured debts.

Bankruptcy

Bankruptcy involves declaring an total inability to repay debts to creditors as a way to get out of debt. Creditors can also file a petition to force the bankruptcy of a debtor.

Bankruptcy usually has long term effects on the credit scores of a debtor, and a forced sale of unprotected assets can be implemented by the court system to get out of debt.

There are many forms of bankruptcy, with the most common being Chapter 7 and Chapter 11.

As bankruptcy makes the process to get out of debt a completely legal matter, be sure to consult a lawyer before attempting or initiating any bankruptcy procedure.