Start by doing the following:
You can then evaluate the various alternatives and choose the best one for you, which might include negotiating with your creditors or, in some cases, doing nothing at all.
If your financial difficulties are temporary, you might be able to get debt relief by getting more time to catch up on payments or a temporary reduction in payments.
But if your situation is permanent or long-term, you'll need a more permanent debt-relief solution to reduce or eliminate your debts entirely. Debt settlement or filing for bankruptcy might be appropriate for your situation.
It's essential to know which of your property is exempt so that you understand which items are at risk for collection and which are safe. You can then decide which assets, if any, you want to use to pay your debts.
Depending on the type of debt you owe and the exemption laws available to you, your income might be protected from creditors in whole or part. Certain income sources, like Social Security, have special protections that extend to funds directly deposited into your bank account.
Here are some debt-relief options to consider.
Start by listing all of your outstanding debt. Then make a budget that includes all of your income and expenses. Explore ways to reduce spending and expenses—and, if possible, increase your income—then revise your budget accordingly.
Next, using your budget as a guide, come up with a realistic dollar amount that you can devote to paying your debts each month. At this point, it might also be helpful to prioritize your debts. That is, determine which are the most important to pay.
Generally, doing nothing is only an option if you're judgment-proof. "Judgment proof" means that your creditors, even if they sue and get a judgment against you, won't be able to collect from you.
In most cases, all of the following must apply for you to be judgment proof:
However, even if you think you're judgment proof, ignoring your creditors and debts is usually not a good idea. Being judgment proof could be just a temporary condition because your financial situation could improve.
You might be able to get some relief by negotiating with your creditors directly. Different types of debt have different options. For example:
Once you know what you can afford to pay each month, contact your creditors. Tell them what's going on—maybe you suffered a job loss, divorce, medical problems, or other financial trouble—and explain how the hardship has impacted your ability to pay your account. Inquire about options for debt relief and ask for help.
You might be able to settle some debts, like credit card debt, by paying less than you owe in a lump sum. Remember that if you settle a debt, the amount that the creditor forgives might be taxable.
If you're not happy with the alternatives, feel free to ask if any other options are available for you to consider. The more you know about your choices, the more likely you'll be able to come to an agreement that works for your circumstances.
If you decide to go this route, be sure to work something out with each of your creditors. If you negotiate a payment plan with only some of your creditors, the other creditors might sue you and essentially negate whatever benefit came out of your successful arrangements.
And if you do end up filing for bankruptcy, which is not uncommon, the fact that you paid off some of your debt won't benefit you.
Another option is to get debt-relief help from a reputable and accredited nonprofit credit counseling agency. The National Foundation for Credit Counseling website is a good place to start looking for one.
Credit counseling agencies can provide money management education, budget counseling, debt counseling, housing counseling, and referrals to other agencies that can help. A credit counseling agency might also be able to contact your creditors and create a debt management plan.
Remember, though, if you pay an agency to help with your debt problems, you're spending money that you otherwise could have used to repay your debts. Figure out whether the amount the credit counseling agency charges for its services makes sense. If you pay more for debt assistance than you save through reduced interest rates and discounted principal, you're adding to your debt load.
Also, before you use a credit counseling agency, do some research. Not all agencies are legitimate; some charge excessive fees, fail to perform promised services, or sign you up for a debt management plan without explaining other options, like filing for bankruptcy.
If reaching individual agreements with your creditors is impractical, you have a lot of unsecured debt, or you want to stop a wage garnishment, bankruptcy might be the best solution.
If you can't make your federal student loan payments, a variety of options are available to you. In most instances, you must take action before falling too far behind.
The options differ based on the type of loan you have. You might qualify for a better repayment plan, loan cancelation, deferral, or forbearance. Consolidation might help, but it might also limit your options.
Contact your loan servicer to learn more about the various alternatives. You can also learn about your options by going to studentaid.gov.
For most people, getting debt-relief assistance from family or friends is a short-term option. But getting help from family or friends might be easier if you have a plan for dealing with your debts.
For example, your family might be more likely to pay your bankruptcy attorneys' fees or help you out with a payment to rehabilitate your federal student loans, which then enables you to get on a better repayment plan, instead of helping you make payments every time you fall behind.
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Learn about defenses you might have if a debt buyer sues you to collect a debt.
Consider consulting with a debt-relief lawyer to get more information if you need help deciding which course of action is best.
Again, if you have a lot of debts you can't pay, you might also want to consider filing for bankruptcy. In that situation, you'll want to talk to a bankruptcy lawyer.