Liquidating Assets: This is known as the most common non-bankruptcy debt relief solution, as it is effortless and a number of people go for their retirement accounts to fulfill this solution. But, just like any other solution, it also has consequences, including tax implications for early withdrawals.
House refinancing to repay other debts is also some of the popular options available. But of course, you must be ready to interest and any refinancing fees it attracts for over a 20 or 30 year time period.
Credit Card Cash Advances and Balance Transfers: These are counted amongst the readily available options, but they have high-interest rates. Too often these solutions are proven to be temporary, and in case the spending habit of an individual hasn’t changed, then they find themselves right back in the same situation, i.e. too much debt on their head with too little cash in their hand.
Credit Counseling: Credit counseling, an emerging industry has come under scrutiny because many of the outfits work like hyped collection agencies, getting fees from the clients’ creditors on their recovered debts.
The success level is low, and the payments regularly exceed on what people can afford monthly. Apart from this, a major issue is creditor participation, where not all creditors can participate. So, here are some guidelines if you want to consider this:
- Credit counseling must be done face-to-face. Sharing important information on the phone is a bad idea. There is no surety these days that the voice on the other end of the phone is even in the US
- Make sure to ask your credit counseling agency if they can make all of your creditors participate. If you have an uncovered creditor, then you have to settle the debt of that creditor outside your credit counseling plan.
- Plan in such a way that you will be able to pay both the credit counseling fees and the amounts which are not covered in the plan (just in case).
- The credit counseling option does not cover secured debts, payday loans, and old liabilities which are in the compilation.
- Credit counseling will definitely impact your credit rating, as it will be reflected on your credit report.
Negotiated Settlement with Creditors: This could help reduce the principal amount for a lump sum payment, or extended payment terms. The risk involved is that your creditors can take legal actions against you as you gather the settlement amount to pay to your creditors. In such case, you should proceed with caution and employ a bankruptcy attorney for your assistance.
A reduced principal settlement can attract possible tax implications. If negotiating extends the payments, then be sure of the interest rate and also know when the debt will be completed. Ensure that you are choosing someone, who has the authority to conduct negotiation of a settlement with you.
Be confident that the debt is settled and released either with the help of a lump sum payment or payment extended terms.
Loss Mitigation: Loss mitigation is considered as the most preferred debt relief option for mortgages. It works to either generate a financially feasible mortgage resolution for the homeowner or relieve the mortgage obligation from the homeowner. Loss mitigation further includes the following options:
- Loan Modification: This option alters the mortgage of a homeowner and both the lender and the homeowner have to abide by the new terms. These modifications include lowered interest rate, reduced principal balance, increased loan term, forgiveness of payment defaults and fees, or any other combination of these options.
- Short Sale: In this option, a lender agrees to accept a payoff which is less than the principal balance of a mortgage, and offers permission to the homeowner to sell the house for its actual market value. This only applies to those homeowners who have a mortgage balance larger than the market value of the property. With the absence of such an agreement, the homeowner could not sell the house. Most probably, there are tax consequences of such deals. It also harms one’s credit rating.
- Short Refinance: This is made possible when a lender decreases the principal mortgage balance in order to enable the homeowner to refinance with a new lender. The reduction in principal must match the loan-to-value guidelines of the new lender, making the refinancing possible. Tax and credit consequences are the same as other options.
- A Deed in Lieu of Foreclosure: It is an option where a mortgage borrower voluntarily deeds over the collateral property in exchange for a release from all mortgage responsibilities. Highly damaging to the credit ratings.
- Forbearance: For some time period, no monthly or reduced payment is needed in this option. Sometimes, the lender will ask for the reduced or missed payments to be repaid after the forbearance process is completed while other times the lender will just alter the loan.