In the last issue we talked about paying off your debt with some methods that you could do on your own. Let’s talk bout other options to payoff your debt, that you will need to consult a professional and make some tough choices before moving forward.
A Home Equity Line of Credit or Home Equity Loan: this is a mortgage against the equity in your home. This is similar to debt consolidation except for using your home as collateral. While this can be a much lower interest rate (and may be tax deductible), you are taking possibly unsecured debt and securing it with your home. In addition, there may be closing costs, attorney fees, etc. involved with the mortgage process. And if you cannot make the monthly payment, there can be substantial consequences involved up to and including the loss of your home.
Debt Settlement sound like a great option to settle your debt for a lesser amount. You would be paying a smaller agreed upon amount to pay off your debt. While it sounds good, first do you have the cash to do this? Second, there could be tax implications on the amount you save (the IRS can consider this taxable income). In addition, this will be a negative factor on your credit report / score.
Bankruptcy, this is typically the last resort. The is a legal / financial decision that you will need to discuss with your professionals (lawyer, tac preparer, etc.) before moving forward. There are two types of bankruptcy. One you will enter a payment plan to payoff your debt for a fixed period of time. The other option, you will eliminate your debt entirely. But you need to think about what is involved in the big picture – your will have legal fees that will need to be paid, your credit will most certainly be affected, and your will have difficulty receiving new credit at a reasonable interest rate for a period of time. You will be able to get credit but at a much higher interest rate initially. Until your credit is reestablished.
One tool that I find useful is a financial calculator and BankRate.com is one of my favorite websites that offer a variety of calculators to help you make a decision that is right for you. https://www.bankrate.com/calculators/index-of-credit-card-calculators.aspx
Now that you have several options, make the choice that is right for you and your situation. Talk to your professionals to get their option. Then consider the benefits and costs involved. These are not easy choices, but one that you need to make if you have substantial debt that you want to payoff once and for all.