3 More Factors You Should Consider in Debt Management

Are you slowly sinking below a flood of debts? Are your credit cards maxed out and you can only make the minimum payments? If so you should consider starting a debt management program. Your first step is gathering all your financial information and creating a budget that begins to chop away at that stack of overdue bills. Debt management includes: debt consolidation, credit counseling, debt settlement and as the last resort bankruptcy.

How Much Debt
Take a good look at how much unsecured debt you have. If it's only a few thousand dollars it might take just six months to pay it all off. Debt over $10,000 requires more intensive action. If your total debt compared to your income is more than 30 percent of your income, you are in trouble. Credit counselors will set up a budget with you and then negotiate with your creditors to lower the interest rate, waive late payment fees and membership fees. They do not negotiate to decrease the amount owed. If you do that it's called debt settlement.

Income
You might not think income has any impact on debt management but it does in the sense that creditors can garnish up to 25 percent of your wages if they win a judgment. Rather than settling with you for less than what you owe, or agreeing to spread out payments, the creditor may decide to pursue litigation. Income is not reported on your credit report. However, if you are going through debt settlement or credit counseling, creditors can find out through the budget paperwork you complete.

Your income also affects whether you qualify for a Chapter 7 bankruptcy or must go for a Chapter 13. The difference is the Chapter 7 gives you a fresh start the minute the bankruptcy is finalized while the Chapter 13 is a three to five year repayment plan of your debts. That repayment plan pays off as much debt as your discretionary income allows.

Assets
Your bank accounts, stock portfolio, house, car and personal property are at risk if a judgment is obtained by a creditor. The creditor will obtain a court order that requires you to disclose all your assets. The credit counselor may encourage you to sell assets and put the proceeds towards the debt. If you declare bankruptcy, the assets that are not exempt may be sold by the bankruptcy trustee and used to pay down debt. The exemptions vary by state. Florida allows you to exempt all the equity in your home while Arizona only allows up to $150,000.

View the Original article