Repaying creditors and getting rid of debt
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There are different default reimbursement methods to pay off debt- individual or commercial. As borrowing a monetary amount is a requisite process for some consumers for affording a big purchase, owing a liability will most often lead to a bad debt situation. Even if the debtor is not behind with his regular payments, managing properly his finances can exclude a future bad debt situation. If a subject in debt needs professional advice, regarding his monetary obligations towards a creditor, he can use professional help from different organisations (private, which require payment; or non-government, which work on charity principle). These institutions can advise a subject on specific debt repayment topics regarding whether the debtor has fallen behind with payments, or to prevent past-due defaults in future: how to repay his liabilities towards a lender, how to organise his budget and income, offer him various debt clearance and debt reduction methods, etc. Depending on whether a consumer/business subject in debt has or does not have enough finances to repay the debt; whether one needs to get out of an overdue debt situation or wants to avoid eventual future problems with late payments, there are different schemes applicable for how to pay off debt.
How to pay off debt with financial funds available
When a consumer has difficulties with his debts but still has the financial funds available to settle his defaults in full, he can negotiate with the creditor for changing the contract’s main terms. The least drastic repayment method is the debt consolidation. If using this scheme, the consumer will not have to clear the debt using his own recourses, as consolidating debts is used in the meaning of grouping all existing defaults into a single one. This method does not require negotiation with the lenders. The individual in debt borrows one last sum in order to cover all other debts. Although consolidation will prolong the total debt repayment period, it is beneficial because it leads to lower monthly interest payments.
Debt management is another step a consumer can proceed to. A consumer or a corporation in debt can carry out his own personalised managing of defaults, negotiating with the creditor without using the external help. Or he can look for assistance from professional debt management companies, who will arrange alteration of debt terms, negotiating with the lender on behalf of the debtor. This is also known as credit counselling and represents a non-official debt agreement. Debt management is probably the most beneficial repayment method, as it is flexible and allows different changes in the default terms, including a decrease of interest, total debt sum, lower monthly payments and other benefits. The disadvantage is that as it is not legally bound, the creditor can desist from applying the new terms at any time.
If a consumer does not have the financial funds to cover the full debt sum, he can offer debt settlement to the creditor. This is an official agreement for the change of default terms between two parties. Although it will damage debtor’s credit score, it will provide further convenience for the borrower, as in debt settlement part of the total default amount is forgiven. If the subject of debt can afford to recover the rest of the amount at once, debt settlement is most convenient. When a lender agrees to this repayment method, he requests a lump sum to be transferred in one payment, usually within a couple of days or a week. When the consumer completes the transaction, he is considered as debt free. An alternative to a debt settlement in Canada is known under the name of CP (Consumer Proposal), available for individual unsecured debts.
How to pay off debt with less or none financial funds
If a debtor does not possess the available financial means to cover the debt in full and he cannot afford to meet up the debt terms anymore, regarding specific monthly payments, he can resort to Debt Relief Orders for UK & Wales and Northern Ireland. When a person is not in the financial condition to reimburse his overdue accounts, the DRO is the least stressful and drastic alternative method to bankruptcy. Such order is filed by High Court and extricates a debtor from his financial liabilities towards a creditor for a certain period of time. DROs are applicable when a subject of debt has suffered a drastic decrease in his monthly income. If after this time-frame the debtor is still financially unable to cover his debt obligations, the defaults will be written off in full.
Bankruptcy is the last resort used when a borrower has no pecuniary means to keep up with the debt payments anymore. This method will alleviate consumer’s bad debt situation, but it will critically devastate debtor’s credit score. Furthermore, bankruptcy proceedings do not cover all types of debts. The process excludes past-due defaults, such as:
- private education loans
- secured debts
- child support fees
- household bills & taxes, etc.
- how to pay off debt
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