Dealing with debt is something we all have faced at some point in our lives. But it can get really stressful the deeper you dig yourself down. Once you start getting calls from collectors and the late notices start to pile up, you know it’s time to get help. There are a lot of debt relief options out there and it’s important to choose the one that will be most beneficial for your financial situation. The debt relief option of restructuring can include negotiating with creditors to reduce the amount of debt you owe or even getting some of the debt swept away through bankruptcy. This may sound appealing, but like anything it comes with some drawbacks. Here are the basics you need to know when considering reconstructing your debt.
Restructuring with a debt management plan
When restructuring debt with a debt management plan, you can work with a nonprofit credit counseling agency or lawyer to help guide you through the process. Whichever agency you choose takes on your debt and then they negotiate with your creditors to reduce the interest on your accounts or even the amount you owe, and consolidate all your payments into one. You then will only pay one monthly payment and the counseling agency or lawyer will then disburse the money to your creditors. This is similar to a consolidation loan, only you have an advocate to help you reduce the amount you owe before you commit to paying. Also your representative makes the monthly payments to your creditors for you each month instead of them getting payed off in full. By them doing this, it takes the stress off of you having to deal with them calling you or sending you delinquent notices all the time. It also will save you money in the long run because they will be able to cut down your interest rates and amount balances.
Restructuring with bankruptcy
Chapter 13 bankruptcy is actually a form of debt restructuring. It is a different process, as you have to go through the court to file. Once you go to court a judge will assess your finances including your debt and income ratio. In some cases some of your debt, like unsecured debt, can be discharged and the remaining debt will be restructured with a lower interest rate. The goal is to pay off the remaining debt within the next three to five years. Chapter 13 bankruptcy is a much longer process and once you officially start the process an automatic stay will be placed on your accounts, prohibiting them from contacting you about delinquent accounts. Chapter 13 bankruptcy does take a hit on your credit and it won’t fall off for seven years so it would be wise to only utilize this form or debt restructuring if it is a last resort as rebuilding can be a long road.
Debt restructuring can be really beneficial if you are in some serious debt and feel like you will never catch your breath. Having those harassing phone calls stop and getting this debt off your shoulder within the next few years can be so freeing. Once you make the choice to resolve your debt you then start on the path to financial freedom once again. It may be a long journey, but it will be well worth it.