Loan Articles

Borrowers who are knee deep in debt have different alternatives to choose from. You can sell some of your assets, real estate, or anything of value and use the money to repay a portion of your debts. If you don’t have assets or do not want to sell them, you can apply for repayment assistance or consider debt consolidation. Bankruptcy is a last resort, and there are different ways to go about it (e.g. chapter 7, 11, 13).

Debt Consolidation

This is a debt relief procedure that allows borrowers to consolidate their loans and get a low fixed-interest rate. In essence, you take out a new loan to repay your outstanding balances. You can consolidate student, auto, and personal loans, credit cards, etc. To find out whether this option is good for you, you may want to review your monthly income, expenses, and budget. Calculate your utility bills, groceries, and other expenses, as well as your insurance premiums, credit card and loan payments, and other liabilities. This is a good way to determine whether you can save money to pay a portion of your debts. Then you should consider your debts and interest payments. While the interest rate will be lower, a longer repayment schedule means that you will end up paying a lot in interest charges. If it takes too long to repay your loans, it is a better idea to opt for debt settlement.

Debt Settlement

With debt settlement, the borrower offers a lump sum to pay a portion of his debts, and the creditor agrees on a reduced balance. Many financial institutions are willing to negotiate with debtors and accept reduction. Borrowers enrolled in a settlement program pay a fee that is deducted from their monthly payment. A certain amount of money is deposited in a trust account. It is used to reduce the outstanding balance by 40 to 60 percent. For example, if you owe $5,000 on a credit card, you may negotiate with the issuer to pay $3,000. The financial institution agrees to accept a lump sum payment and forgives the remaining $2,000. Some settlement companies advise their customers to stop paying their loans. The problem is that this can lead to liens, garnishments, and lawsuits. The fees paid to settlement companies are another issue. Some charge 10 percent while others – 14 – 18 percent of the debt amount. In any case, there are benefits for debt-ridden borrowers. One is that the repayment term is shorter compared to alternative methods. You may be able to pay your debts within a period of 12 – 36 months. Your financial problems and hardships will be kept confidential. If you choose to file for bankruptcy, your credit score will be affected and your financial problems will be disclosed publicly.

Debt management is an alternative to settlement and consolidation. It is an agreement between a financial institution and a borrower to repay the balance at a reduced level. A debt management plan usually includes personal loans, credit cards, and other types of unsecured debt. Late tax bills and mortgage payments are excluded from the plan.


Bankruptcy will damage your credit score and will make it more difficult to get approved for credit cards and personal and business loans. You will lose all of your non-essential possessions. In addition, you may see your tax refunds from local and state authorities denied. Finally, not all of your debts will be discharged, including alimony, child support, court fines, income tax, and others. Student loans also fall in this category.