Taking care of your consumer debt is one of the main elements to help pull your household out of the red, but also the economy itself, back on track. Before making any decisions regarding debt relief options spend your time online researching so you understand the different options. There are many debt relief options like debt settlement, debt consolidation, debt management, bankruptcy and so on. Each of these has their own pros and cons.

Debt relief options and things to consider

Since there are different debt relief options it is important for you to consider the pros and cons of all the options. Debt settlement occurs when the creditor agrees to settle your debt or debts for less than the original outstanding debt. This doesn’t mean you don’t escape unscathed. Settling debts comes with a cost. With debt settlement, your credit score can be negatively affected as you are required to miss payments on your debts. As well, if the settled amount is too large, you will be required to pay tax on the same. When the debt is forgiven it is considered income.

Debt consolidation means combining outstanding debts into one location for a lower interest rate. Generally you require some form of collateral to quality for consolidation. Another advantage of consolidation is that it is non-taxable. So, this helps cut down the monthly payments. Lower payments with lower interest rates can be a good thing to pay off debts faster.

With debt management plans there is an additional advantage. Here you are required to go to a debt management company for help and they are the ones who negotiate with your creditors. For example, they may be able to reduce payments or even payment fees with creditors. The disadvantage is same as that of debt consolidation, don’t forget to make your payments. Also, conduct due diligence on your debt management company to ensure they are reputable.

Refinancing is another debt relief option that helps you continue making payments on your home. When interest rates are low, and your credit score is in good health, re-financing options are available through the creditor. This essentially enables you to restructure a new payment plan. Of course, re-financing options dwindle when your home equity declines due to downward housing trends.

One of the final debt relief options is declaring personal bankruptcy. Bankruptcy helps you with discharge of most of the debts as much as possible. It becomes easier for you to handle the debt well. Moreover, there is also the legal advantage of filing bankruptcy, as it immediately puts a stay order when filed. However, the greatest disadvantage of bankruptcy is that it hurts your credit for years to come. When you file bankruptcy, it lowers the credit score by around 200-350 points.

All in all, contact a certified financial planner who can walk you through the various debt relief options at your disposal. Most of these are last resort options to get out of debt when all else fails. A CFP will also help you with financial education so you don’t continually get caught up in a debt cycle.