Debt consolidation is one of the most popular and effective ways for individuals to get out of debt. While it’s a great method, it’s not optimal or even available in every situation. Here are some debt consolidation alternatives for those who need another option.
Top 4 Debt Consolidation Alternatives and Options for Individuals
One of the most obvious alternatives to debt consolidation is also one most people will want to avoid: bankruptcy. Like with all things, there are pros and cons to the bankruptcy process. But overall, it’s typically going to make your life difficult for an extended period of time. While bankruptcy has an understandably bad reputation, it’s sometimes the best way to get a fresh start when you’re too deep in debt.
There are two types of bankruptcy typically pursued by individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as a liquidation, is by far the most common in the United States. This is where your qualifying assets are sold off in order to repay your creditors, who will have to accept this instead of your full loan amount.
Chapter 13 bankruptcy works a bit differently, as this lets you work with a bankruptcy court in order to develop a repayment plan for your debt. This is only for people who meet certain income thresholds, which is why it’s typically not pursued by most people.
The good thing about bankruptcy is that your debt is gone when you complete it. But that doesn’t mean the effects of bankruptcy won’t linger around well after the fact. Here are some of the negatives to bankruptcy:
— Your car, home, or other valuable items can be liquidated through bankruptcy. This can even include things such as family heirlooms.
— Anyone who co-signed your loans will be affected by your bankruptcy, as their name is associated with it. The co-signer might even have to keep paying the debt.
— Damage to your credit is almost guaranteed from filing for bankruptcy. Depending on the situation, a bankruptcy can show up on your credit report for up to ten years afterwards.
While bankruptcy can often feel like a fresh start, the aftermath can linger around for far longer than what’s expected by many people.
2. Home Equity
Some might consider turning to a home equity solution as a way to get out of debt without consolidation. While this can sometimes be effective, and there are a few ways of going about it, there are some pretty substantial risks involved with this approach.
Taking out a home equity loan, for example, means you’re borrowing money with the equity you have in your home. This is essentially the portion of your home that you really own, which subtracts whatever your outstanding mortgage balance, since that’s debt. The biggest risk involved with this is that your home itself is on the line, and can be taken away from you if you don’t repay the loan.
3. Debt Settlement
Another route for individuals who can’t consolidate their debts is to go with debt settlement. This is an approach where you work with a debt relief agency, which will actually negotiate a lump-sum payment to be made to your creditor to clear your debt. This is a good solution for people who are deep in debt, but don’t have many other options.
It’s important to choose a reliable organization when going the route of debt settlement. No all companies in this space will have your best interests truly at heart. Some aren’t even legitimate. For those looking for a trustworthy source for debt settlement, Freedom Debt Relief is one of the best out there. You can read Freedom Debt Relief reviews to get a better idea of what they can do, as well as the positives and drawbacks of debt settlement.
4. Not Paying Your Debt
There’s always the option to simply not pay what you owe. While this might seem ideal in a sense, it’s really not going to be helpful to you in the long run. Individuals who don’t pay their debts or address them at all will of course be getting collections calls. It will also seriously hurt your credit to the point that you might not be able to borrow money at all. Furthermore, it’s possible for you actually be sued if you don’t pay certain kinds of debt. In a worst-case scenario, your wages can be garnished for decades, with interest. While some people end up taking this approach, you need to understand the risks in doing so.
If debt consolidation isn’t always an option. If you need to find another route to get out of debt, consider the pros and cons of these avenues before making a decision.