I heard some sad news the other day. Some friends of our are going through a separation. We knew that they’d been having financial troubles for quite some time. She is an extremely high maintenance gal while her husband is her polar spending opposite.
I remember back when they got married and how they had a very elaborate (expensive) wedding. No expense was spared and even though her parents kicked in a huge portion of the bill, the wedding still cost them thousands. They accomplished this feat in the same way that manner young couples do – first draining their savings accounts and then loading up on the credit credits.
Unfortunately for them they are now paying the price for spending more than they could afford. They’ve tried paying down their debt, but they haven’t been successful at decreasing the amount they owe. Since they were just sinking deeper and deeper into debt, they’ve begun to look into debt relief options. Here are a few options they are going to be researching in dealing with their debt situation:
Credit Counseling can help those who need moderate monthly payment relief due to high interest rates. Credit counselors can help you get lower rates so that it will shorten the time it takes you to pay off your debts. However, if your financial situation is more serious, credit counseling may not be the best option.
You need to have great credit and a strong income in order to qualify for debt consolidation. The most common form of debt consolidation is a cash-out refinance. It uses your home equity to pay off credit card debt. However, many homeowners don’t have enough equity or the credit rating to qualify for a loan. If you do qualify, it is important to know that you are shifting unsecured debt into a new debt that is secured by your home. If you don’t make the payments, your home could be in jeopardy.
Debt settlement is a more aggressive approach to debt relief. This option should be considered if you are looking to resolve your debt quickly for a lower total cost. Keep in mind, however, that it will negatively affect your credit. If you already have less than stellar credit and resolving debt quickly is your top priority, this may be the solution for you.
Bankruptcy is often seen as a last resort, but in some cases, it may be the best option. If you file for bankruptcy, the ramifications are serious, damaging your credit score for up to 7-10 years. Note that there have been changes in bankruptcy law that have made it more difficult to qualify for Chapter 7 bankruptcy. This pushed more people to file for Chapter 13 bankruptcy, which is essentially a repayment plan.
I really can’t tell my friends what they should do. I did tell them they would need to look at each scenario carefully and make the decision together on the best way to handle it. I advised them that no matter which option they choose, they will only be successful if they stop their bad spending habits, get on the right track, and stay committed to getting rid of debt.
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