Have a look at the 5 ways to pay off debt that can lead you to a more comfortable financial life.
Interest rate arbitration: You obtain a secured or an unseceured loan at a low interest rate to pay off your existing higher interest unsecured debts. It helps you manage debts by reducing your interest rates and monthly payments.
Interest rate arbitration pros
Interest rate reduction
Lower monthly payments
Gradual increase in your credit score
Debt management Plan: This is where you get debt counseling and debt advice from credit counseling organizations. They help you plan your budget, and arrange a plan with your creditors to lower your interest rates.
Debt management plan pros
Lower interest rates
Elimination of late fees and penalties
One easy monthly payment
Re-aging accounts (bringing them current if you fell behind)
Predictable debt payoff time frame of 5 years or less
Debt settlement: In this debt plan, the settlement company/law firm consults with you about your financial and personal goals. If settling some or all of your unsecured debts for less than what you owe is an appropriate solution, they will create a trust account in your name and negotiate with your creditors/collectors to settle debt.
Debt settlement pros
Lower payoff amount
Out of debt sooner than by enrolling in a debt management plan, or when filing chapter 13 bankruptcy
Chapter 13 bankruptcy: This is where you can arrange full or partial payment of your debts in a period of 3 or 5 years (the vast majority of plans in chapter 13 are 5 yrs) under supervision of the court. Chapter 13 can help those who want to keep their personal and real property, and have a regular source of income. This is also known as a wage-earner's plan..
Chapter 13 bankruptcy pros
Payments toward debts are fixed with no interest
Principal amount is reduced in many instances
You cannot be sued by creditors while making payments on your chapter 13 plan
No need to sell assets and properties for debt repayment
You can cram down second mortgages in some instances allowing you to keep your home
Chapter 7 bankruptcy: This is where your non-exempt assets are sold by the court-appointed trustee. The sale proceeds are used to pay off your debts. You can discharge your debts within a period of 4-6 months.
Chapter 7 bankruptcy pros
Your unsecured debts are discharged
Liens, bank account levy and garnishments are stopped
You cannot be sued by creditors listed in your bankruptcy after the debts are discharged
You can protect several types of retirement accounts from creditors
You can often reaffirm secured debts like a mortgage or car loan and keep those assets