The most obvious answer to the question “How to avoid debt problems” is not to have debts. Unfortunately, things are far from simple. Almost anyone can find themselves in a difficult financial situation. Depending on the conditions in which a debt was formed, its size, and your current solvency, you may have several options for solving the problem with debt and related issues.
The presence of debt is in itself a rather severe problem, which should be tackled as soon as possible. At the same time, it brings several other difficulties, such as:
- Proceedings with collectors. Although the FDCPA restricts their activities and sets clear boundaries, some unscrupulous services neglect them and can overstep the line.
- Damage to your reputation as an employee and citizen. Collectors who do not follow the FDCPA guidelines may disclose your debt to third parties.
- Failure to pay off debt obligations negatively affects your credit rating.
- The sum of debt increases due to the accrual of interest and penalties;
- All this can lead to physical and mental health problems.
In the end, the matter will come to trial in court. It is essential not to bring the issue to a critical point but to quickly start looking for a solution that suits you to avoid all this.
Debt Relief Methods
1. Debt settlement
This option is also called debt reduction, as it allows debtors to get rid of some of their unsecured debts. The amount that creditors are ready to forgive you may differ. Success depends on how effectively the debt attorney negotiated on your behalf. In some situations, lenders are glad to dismiss part of your obligations if you can deposit the agreed part of the overall sum quickly. It is much easier for them than going to courts or referring your case to collectors.
2. Debt consolidation
Under this method, instead of several loans with different interest rates and schedules, you get one with uniform conditions. It makes it easier to pay off the debt, reducing the likelihood of confusion. As a rule, a new loan agreement is concluded with new conditions, and you make payment already under it. This technique is beneficial precisely because the interest rate is now the same in the long term.
3. Debt management
Debt restructuring is possible if you have a permanent source of income and can make regular payments. After discussing your situation with creditors, you can agree on a new plan, which, for example, decreases the part of monthly payments but provides an extension of your contract. Usually, banks and other lending institutions meet their clients halfway on debt restructuring issues, as it ensures stable compensations.
If you have a complicated financial situation that does not allow you to make regular compensations to pay off your debt, you can resort to bankruptcy. Depending on the Chapter, you can get rid of some or all of your debt burden. When considering this option, keep in mind that certain types of debts are difficult or impossible to get rid of (for example, child support).
Look for a Solution Now
Of course, accumulated debts cannot go unnoticed for your credit rating. Each of the described methods has inevitable consequences. Regardless, staying idle in a situation where you cannot handle the financial burden on your own is the worst option. To understand which methods are best for you, consult a specialist.