Most families assume that living with debt is normal, even the American way. Whether or not they think they have a debt problem, many Americans are giving a huge portion, if not all, of each paycheck to lenders instead of keeping their hard-earned income for themselves and their families.
Mpowered is here to share with you a new story, one about the joys of living without debt, free to do that you choose in life. What would you do if you woke up tomorrow morning with no car loan, no student loans, no credit card debt and a house that was paid for? STOP and think about that question for a minute.
Once you make the decision to get out of debt, the next step is to look at options available for those who are struggling with unmanageable debt. In some cases, a little financial belt tightening or a few accelerated credit card payments are enough to make some significant progress (use our Debt Reduction Calculator to put together your plan!). Sometimes, though, a debt crisis becomes too overwhelming to handle on your own. Here are some options:
Credit Counseling/ Debt Management
Non-profit credit counseling agencies offer debt management plans (DMP). With a DMP, you make monthly payments through the credit counseling agency over 3 to 5 years. Those payments are immediately sent to your creditors each month to pay off your debt. In exchange, your creditors often agree to lower your interest rate and waive penalty fees. As long as you stay current on your payments, credit counseling won’t hurt your credit score, it can actually improve your score as you develop a consistent payment history and pay down your debt balances. Click here to learn more about mpowered's DMP.
Debt settlement companies negotiate with creditors to reduce the amount of debt you owe. You’re directed to make monthly payments into a savings account (after the company takes their large, upfront fees). In the meantime, your creditors receive no payments, they add interest and penalties to the amount you owe, they report the non-payment to the credit bureaus, and they can pursue legal action against you. When a certain amount has been saved, the debt settlement company will go to one of your creditors and offer to pay off a percentage of your debt while your other creditors are pursuing judgments and garnishments. In most cases, unfortunately, working with debt settlement companies only creates more problems.
In Chapter 7 bankruptcy, many of your debts are wiped out. In Chapter 13 bankruptcy, you’re required to pay off some or all of your debts over a 3 to 5 year repayment period. Once you file for bankruptcy, your creditors are prohibited from garnishing your wages or cutting off your utilities. You may have to sell some of your assets, however, to pay your creditors. Also, bankruptcy won’t wipe out all of your debts: child support, tax debts and student loans are usually not dischargeable. Bankruptcy can be severely damaging to your credit history. If bankruptcy has become your last resort, click here to learn more about mpowered's pre-filing credit counseling.