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Minimum Payments/Debt Roll Down |
Debt Consolidation Loans |
Credit Counseling/Debt Management |
Debt Settlement |
Bankruptcy |
| Description |
Requires paying the contractual minimum payment or
slightly more each month until the debt is paid off. With Debt Roll Down, the
payments are fixed and when one account is paid off, the monthly payment is carried
to the next debt in line. |
Taking out a loan pledged by collateral, usually real estate, to
pay off the debt in full and replace it with one loan and payment. |
A program offered by companies that are funded by the credit
card companies themselves. Individual credit card payments are replaced by one
payment to the company. Usually a concession in payment and interest rate is
included. |
Debt settlement is a
legal process to negotiate an agreed settlement on a reduced balance. Generally,
you stop making payments to the creditors and instead accumulate money to be used
for future settlements. Settlements can be made for a lump sum payoff or in
payments. |
A court ordered restructuring of debt. In Chapter 7 Bankruptcy,
non-exempt assets are liquidated and used to pay as much debt as possible. The
balance is wiped out. In Chapter 13 Bankruptcy, a percentage of the debt is paid
back over a time period of usually five years. |
| Who is it best for? |
For the person who's credit is good and is able to make at least the
minimum payment each month without deprivation. |
For the individual with excellent credit and sufficient and
secure income cash flow. |
For the individual that is going through a temporary financial
hardship and is able to pay at least 75 to 80 of the required minimum payment. All
accounts should still be with the original creditor. |
For the person who is already delinquent, soon to be delinquent,
and is unable to make the agreed upon contractual payments without financial and
emotional hardship. It is best utilized as an alternative to bankruptcy. |
For individuals that have no other option. Since October 2005,
Chapter 7 Bankruptcy has become much more difficult to qualify for. Chapter 13
Bankruptcy isbest utilized in for people looking to save a home in
foreclosure. |
| Impact on credit |
Credit is not affected |
Credit is not affected. |
Negative marks will remain on credit report for the duration of
the program or 7 years, whichever comes sooner. Some lending institutions even look
at it as a form of Chapter 13 Bankruptcy. |
In the vast majority of the cases, people who consider debt
settlement already have credit that is compromised. Since the debt settlement
process usually requires withholding of payments, delinquent and charged-off
accounts with further damage credit during the debt settlement process. |
Usually will appear on credit report for 10 years from the time
of filing. Still presents a stigma and can impact employment status or future
employment. |
| Time needed to become debt free |
Paying the minimum payments as prescribed by the credit card
companies can result in a pay off time of 40, 50, or even 60 years. Using the Debt
Roll Down approach can reduce payoff time to 5 to 8 years. |
Varies on the loan, but typically 15 to 30 years. |
Typically 6 to 8 years. Time will vary depending on accounts
entered into the program. |
Typically 2 to 4 years or sooner if lump some money available
through equity loan or other source such as retirement or insurance accounts. |
With Chapter 7 Bankruptcy- approximately 6 months. With Chapter
13 Bankruptcy- up to 5 years. |
| Pros |
Credit remains unchanged since you are honoring your contractual
agreement with creditor |
Debt is replaced by a single loan at a reduced interest rate and
lower payment. |
Interest rate and payments are moderately reduced. |
Quickest time required to eliminate debt other than Chapter 7
Bankruptcy. You decide the amount you can set aside each month toward the program.
Pay off significantly less than the full balance. You control the money, not the
creditors. |
Chapter 7 Bankruptcy wipes out unsecured debt and usually requires the smallest
payout of all debt strategy solutions.
Chapter 13 Bankruptcy can save real property in foreclosure.
|
| Cons |
Payments and interest rate remain the same which can be a
hardship for some. The length of time to pay off can be daunting. You pay back the
full amount of the debt plus considerably more for interest. |
Requires ownership of real estate. You must qualify for the
loan. Some loans come with costs.Full balance must be paid off. Replacing unsecured
debt with secured debt, so in case of financial hardship, home is put at risk. |
Success rate very low (estimated at 25%). You still pay back full
balance plus significant interest. Credit card companies dictate the terms- no
negotiation. Usually billed as not-for-profit, but still charge a mandatory
"donation". Credit is harmed rendering it useless. |
Success rate with third party companies is very low. Credit is
worsened. Possible tax consequence on money saved if you are not insolvent (most
people that enter this program are insolvent). You may have to deal with collection
calls and even possible legal action. |
Negative impact on credit. Cost to file is typically $1500.00 to
$5000.00. With Chapter 13 Bankruptcy you may end up paying close to full amount
owed. During the term of Bankruptcy, your affairs are managed by a court appointed
trustee. Completion rate of Chapter 13 Bankruptcies are very low- approximately
30%. |
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For more information on Debt Roll Down, click here |
For more information on Debt Consolidation Loans, click here |
For more information on Credit Counseling, click here |
For more information on Debt Settlement, click here |
For more information on Bankruptcy, click here |
