Accumulating debt could make life challenging for Maryland consumers. Some means exist to address these issues, although circumstances could dictate which one is feasible. Debtors may benefit from learning as much as possible about the different strategies to make a more appropriate choice.
Debt consolidation and debt settlement
Debt consolidation refers to using one loan to pay off other loans. Transferring balances from two credit cards or more to a single card is another variation. The idea here involves moving high-interest debt to a new loan with a lower interest rate, making the obligation less costly. Also, paying one balance payment per month instead of three or more could result in better budget management.
A drawback of debt consolidation is access. Someone with bad credit may not receive approval from a financial institution for an unsecured consolidation loan. A secured consolidation loan, such as a home equity loan, may be an option.
Debt settlement may appeal to those in a challenging financial position and continue to miss monthly payments. Debt settlement deals involve negotiating a lower payoff amount and closing the account. Lenders may agree to a settlement to avoid losing everything when the borrower defaults.
Debt settlements come with some concerns. For one, some forgiven debt gives rise to a tax obligation. Additionally, the borrower’s credit score would reflect the settlement for many years. Not unexpectedly, it could drop significantly.
Exploring bankruptcy
Filing for bankruptcy might provide benefits to those struggling with debt. Bankruptcy provides a legal process designed to give debtors a fresh start. Collection action ceases when someone enters bankruptcy, and the debtors receive other protections under the law.
Debtors may file for Chapter 7 or Chapter 13 bankruptcy, depending on their situation. Chapter 7 involves liquidating assets, while Chapter 13 focuses on a negotiated payment plan arrangement.