Debt is a four letter word that is feared by most people. However, it is hardly seen that people try and stay out of debt. Most people realize the vices of debt once they incur it. It is then that they would go to all lengths to get out of debt and avoid bankruptcy. There are many reasons for which you can fall into debt. It maybe the excessive splurging that you have done or it might be that you had to take loan for the education of your child or to pay medical bills or any other important purpose. However, debt will always be counted as debt irrespective of the reason for it and you have to pay it back no matter how difficult an economic situation you are in.
How can debt affect you?
The worse thing about not being able to get out of debt is bankruptcy. If you have to go for bankruptcy, your credit score will be affected really bad and be reduced by 150 to 200 points. In such a situation you won’t be able to get any credit whether be a credit card, mortgage, auto loan or even any traditional installment loans. The bankruptcy record remains on your credit report from 7 to 10 years. Thus it is vital that you should avoid bankruptcy. There are two major debt relief options that can help you in avoiding bankruptcy. Read on to know more about them.
1. Debt consolidation – This option is applicable to you if you are not being able to make more than your minimum monthly payments. In debt consolidation all your multiple unsecured debts are clubbed into a single debt so that paying back your debts become easier. Thus you can pay back your multiple creditors with single monthly payments. Also you are able to reduce the interest rate on your outstanding debts with the help of debt consolidation. This makes the process of paying back your debts a lot easier as you now have to make lower monthly payments to get out of your debt.
2. Debt settlement – If you see that debt consolidation is not helping you, you can go for debt settlement. This option is applicable if you have defaulted on one or more payments and there is absolutely no way that you can pay your entire debt back. In the process of debt settlement negotiation is done in order to reduce the outstanding debt amount that you have to pay. Thus you can get about 40% to 60% of your debts reduced.
Thus you can see how the above two processes can help you get out of debt and avoid bankruptcy.
