Solutions For Each Type Of Debt

Solutions For Each Type Of Debt
by Takara Alexis

There are several strategies for dealing with debt - credit counseling, debt consolidation, etc. - and none of them fits every situation. How you decide to handle your debt depends on the amount and the type of debt you have. For example, you might choose a different strategy for credit card debt than you would for auto loan debt.

If all you have is credit card debt, you have some options, depending on how much debt you have and what you can afford to pay each month. Consumer credit counseling is a good option if you need a slight reduction in your monthly minimum payments. Credit counselors negotiate a lower interest rate and minimum payment on your credit cards, but they add a fee that can put your monthly payment closer to what you're currently paying.

Debt consolidation is another option for credit card debt, but may not be viable for credit card balances over $20,000. Consolidation involves paying off your credit card balances with a loan. However, getting a loan big enough to pay off credit card debt can be hard. Personal loans, which are usually unsecured, are only available up to $20,000. Beyond that, you'll need collateral to secure your loan. You can consolidate with a home equity loan, but you need to own a home and the equity in your home should be big enough to consolidate your credit card debt.

Debt settlement can be used on virtually any size debt because you will only pay part of the debt and ask the creditor to cancel the rest. You have to be ready to pay the full settlement amount once the creditor agrees to your offer. How fast you settle your debt depends on the size of your debt and how quickly you can come up with the money to settle your accounts.

Auto loan debt is different from credit card because the loan secures the vehicle. Credit counseling isn't an option for auto loan debt. You could try debt consolidation, but, that means you have to either qualify for a loan big enough to cover your car loan or you need to have enough home equity to pay off the car loan. If you are trying to consolidate an auto loan and credit card debt, you'll need a loan large enough to cover both.

Debt settlement isn't an option for auto loan debt unless you are willing to give up the car. In that case, you'd pay a settlement on the difference between what the lender auctions the car for and the amount you owed on your loan. Unfortunately, you have limited choices for dealing with payday loans. You can consolidate them along with other debt, settle them (but you will have to dodge the lenders for awhile), or you can include them in a bankruptcy filing.

Dealing with student loans is difficult. Since lenders know you can't bankrupt student loans, they won't accept a settlement payment. Consolidation is difficult, but can be done if you can get a personal loan or home equity loan large enough. If you apply for a loan specifically for student loan consolidation, you may have to qualify with more than good credit history. For student loans, it is typically best to work directly with the lender on a forbearance or deferment option.

You may have to use a combination of strategies to deal with all your debt. For example, take out a consolidation loan and use it to settle your debts. Or you can consolidate some debts and use credit counseling on others. Think through your choices and use the one that best fits your situation.