Getting Out of Debt: Understanding Options

21 Mar    Financial
Mar 21

Getting Out of Debt: Understanding Options

Readers who are struggling to get out of debt should know that they are not alone. Millions of Americans are going through the same thing, but there are many options available that can help. Read on to find out about debt consolidation and some of its alternatives to find out whether this solution might be right.

How it Works

These types of specialized loans are designed to consolidate most or all of consumers’ debts into one new loan. This reduces their monthly payments into just one, usually lower-interest, payment and makes it easier for them to manage their debt. Consolidation is a good option for those who are struggling to pay off multiple unsecured loans and having trouble keeping track of all their debts.

What to Look Out For

Some consumers take out consolidation loans with the intent of getting their debt under control only to find that they actually wind up paying more on their new loans. That’s why it’s important to look out for predatory lenders and to read all loan agreement documents carefully prior to signing on the dotted line. If the amount of the consolidated monthly payment will be higher than the combined amount of a debtor’s previous payments, it’s just not worth taking out a new loan.

Understanding Alternatives

Some readers may believe that their only alternative is to declare bankruptcy, but thankfully, this is not usually the case. Bankruptcy should be considered a worst-case scenario option, as it can dramatically impact readers’ credit scores and lead to the loss of arguably essential assets. Readers looking for alternatives to consolidation loans should first consider credit counseling, debt settlement, and debt management and should look into credit card hardship programs that could help.

What is a Hardship Program?

Enrolling in a hardship program allows debtors to cut out the middleman and come to agreements with their lenders directly. Many credit card companies are willing to decrease interest even on defaulted loans if their customers are facing true financial hardship due to something like an unexpected medical issue or temporary unemployment. It may take some time to track down the details of the program and how to enroll, but this is often the most cost-effective way to reduce debt without negatively impacting credit scores.