Pay the minimum / stay in debt
Just keep making the minimum payments and hope you can stick it out. When creditors call offering some token “assistance” program you take it, but it won’t really help – it will just make the creditor more money.
- Upside: Feels most comfortable to you. “Looks” like the cheapest way out.
- Downside: You’re giving up your retirement and staying on the debt treadmill… you are running faster and faster, but not getting anywhere.
This program was invented by the credit card companies. In it, you’ll repay all the debt + interest.
- Upside: None, really, except the calls will stop – because the creditors want you to take this option.
- Downside: You’ll pay back all the debt plus interest. Is that relief to you? You will have credit damage arguably worse than our program. Payments may be higher than what you currently pay. In the end, you might get the same results as our program, except you’ll spend more to get it – a lot more. Creditors push this program because they make more money off you.
Chapter 7 or Chapter 13…. Most cases these days are converted to chapter 13, by which you’ll have to make repayments for five years.
- Upside: You’ll be debt free if you can file Chapter 7, but most people cannot. If you file Chapter 13, you’ll also be debt free, but it will take at least 5 years to get there and then your credit report still shows a bankruptcy.
- Downside: Permanent public record. Thousands in legal fees. The court custodian will dictate how you spend your money and if you disobey, may throw out your case. You will not be able to obtain certain home loans or business loans for life. Credit damage can last for approximately 11 years.
Debt Consolidation Loan
Roll all your debts into one big new loan, possibly into your home loan.
- Upside: If you can get one, and then can afford all the payments, this may be a good solution.
- Downside: In cases of mortgage refinancing this replaces low-risk unsecured debt with high-risk secured debt. This means if you default on your credit cards, the credit card creditor complains by making a bad mark on your credit report, but that’s about it (other than risk of lawsuit which is uncommon). If you default on your home loan, you will go into foreclosure. Most of this is a moot point, simply because these days, very few borrowers can even qualify for this. If you do manage to qualify, you’ll pay thousands in fees (for home refinancing) and repay all the debt.
Debt Reduction Programs
- Upside: These programs may save you some money and it may be a better alternative than Bankruptcy. Also they would not affect your public records in your credit report.
- Downside: These programs can also take 3-5 years and may times you will be ask to default on all your credit card debts and let them go to collections. Then the debt settlement companies settle’s the debts for you with the collection companies. So while you are in this program your credit is usually destroyed because when you stop paying your credit cards they will go 30, 60, 90 120 days late to chargeoff. So make sure you know all your options before joining