With unemployment rates at a 25 year high, more people are falling behind in their debt payments, most through no fault of their own. When faced with escalating collection calls and declining incomes, what are your options? Before you consider bankruptcy, you might want to look at some other options.
Refinance: When so much of the news is about foreclosures, declining values and bank failures, this might not seem like a smart thing to do but if you have decent credit and any income at all, the banks might be willing to do a mortgage streamline. This can save money on the monthly payments and could be the difference between keeping and losing your home.
Debt Negotiation: Write your creditors a letter and tell them your circumstances. Ask for a renegotiation of your debts. In many cases, the creditor will reduce interest and monthly payments to allow you to keep your account current. Keep accurate records of all communications with creditors or collection agencies.
Debt Management Companies: There are many choices when it comes to debt management companies. The theory behind them is simple. You hire a Debt Management Company to negotiate a payment plan with your creditors and then you pay the DMC a monthly payment. They pay your creditors and everyone is happy, right? Not necessarily! There have been many DMCs that have charged exhorbitant fees, failed to work out an agreement with creditors and their customers have ended up in worse shape than when they started. The FTC has published must read article on Debt Management Companies. This outlines the questions to ask and some of the things to watch out for when you are considering hiring one.
Second Mortgage: If you have equity in your home, you might be able to qualify for a second mortgage. You can use this to consolidate your debts and usually get a better interest rate with a lower payment. Make sure that you can afford the payment. There is no reason to trade one delinquent bill for another. Also make sure that there is no prepayment penalty so that you can pay the loan off sooner.
Bankruptcy is still an option but it should be a last resort. It will affect your credit and it is emotionally draining but it can provide relief from the constant stress of not being able to pay your bills. The next article in this series will be on the types of bankruptcy and the qualifications for each.
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