Manage Your Debt: #3 Evaluating Your Options (Part II)

Avoid Bankruptcy and Free Your Debt . Get Refinance Loans , Secured Debt Consolidation or Debt Settlement Advices.

Manage Your Debt: #3 Evaluating Your Options (Part II)

Task 3: Figuring Out a Repayment Plan
Your mission: To see if can pay off those nonessential debts, other than friends and family loans, in 3 to 5 years.

Why that particular time period?
Because that’s the standard generally used in bankruptcy court. If you have enough income and assets to pay most or all of your bills within that time frame, a judge probably wouldn’t let you pursue a Chapter 7 bankruptcy.

You also could consider, carefully using a home equity loan or line of credit to pay your cards. But do so only if you can commit to the following:
1. Not using your credit cards pile up more debt. (for most people, this will mean not using cards at all until the home equity borrowing is paid back).
2. Not borrowing more than 90% of your home equity (and preferably less than 80%) when your mortgage and home equity borrowing is combined. Home equity can be an important source of emergency funds that you don’t want to squander.
3. Paying off the debt in the same 3 to 5 years period. In other words, don’t use the home equity loan as an excuse to stretch out your debt.
Remember: If you don’t commit to these steps, you’ll ultimately just drive yourself deeper into debt.

But, as far as your credit score is concerned, you should keep these points in mind:
1. Although late payments can really hurt a credit score, a charge off is even worse. If at all possible, you should try to avoid letting an account lapse for so long that it’s charged off.
2. If an account has not yet been charged off, try to pay the balance in full either at once or over time. Setting the account with the original creditor for less than you owe can really hurt your credit score. (Settlements on collection accounts typically don’t have as negative an effect)
3. If an account has need sent to collections, you’ll have the most leverage to negotiate if you can pay a lump sum. But eve n if you have to make payments, try to negotiate to have the collection action deleted from your credit report if at all possible. Although having the collection deleted won’t erase the negative marks from your file, the most damaging mark is the charge off, which the original creditor typically won’t drop, getting rid of the collection notation often helps your score.

What if you can’t find a way to get all your unsecured debts paid off, or you’re simply not sure if your plan will work? You essentially have two options: Credit counseling or Bankruptcy .

Your Credit Score Liz Pulliam Weston

Manage Your Debt: #3 Evaluating Your Options (Part II)

Avoid Bankruptcy and Free Your Debt . Get Refinance Loans , Secured Debt Consolidation or Debt Settlement Advices.