Studies suggest that the majority of Americans suffering with overwhelming debt know very little about the options available to help. While filing for bankruptcy is a well known option, many people fear it because of the misconceptions that people have heard. In general, bankruptcy can be a great tool to help resolve debt troubles, but it certainly is not the only option available. Before deciding on a plan for debt relief, it is important to review the benefits and risks associated with all of the options available.
Debt Settlement
Most people have heard about debt settlement, which involves negotiating with creditors to obtain a reduction in the overall amount owed on a debt. The first thing to consider about debt settlement is that not everyone is successful in obtaining a settlement agreement. Even using a third party company to mediate the negotiations may not be enough to convince a creditor to reduce the amount owed on the debt.
Debt settlement should be pursued with caution for two main reasons. One is that it often requires a fairly serious level of delinquency before creditors will agree to settle. This means that the debtor is likely to have missed many payments and suffered significant credit damage by the time they enter settlement negotiations. Second, many debtors have been fooled by third party companies that claim to mediate the settlement agreement but failed to follow through, leaving the debtor in worse condition than before. However, a successful debt settlement deal can drastically lower the amount a debtor will be required to repay, saving them lots of money in payments and delinquency fees.
Debt Management
Surprisingly, debt management plans are not as popular as one would think. The biggest reason is that few people are up for the challenge of putting in the time and effort it takes to complete the plan. In general, a debt management plan is one that is developed to outline a strategy for paying off debts. The debtor can develop the plan by themselves or seek help from a qualified financial expert in developing the plan.
The main problem with debt management plans is that most people do not know how to develop or follow through with them. Many more people start out strong, but get distracted and fall away from their plan. Debt management plans take a lot of focus, which can be guided with the help of friends and family. One way to get educated about how to develop and follow a debt management plan is through credit counseling. These companies offer free resources and cheap workshops that can teach anyone how to manage their money more efficiently and get out of debt. The biggest benefit of debt management plan is the satisfaction from completing a debt reduction plan on your own, without the need for damaging one's credit.
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