There are many reasons you can be in heavy credit card debt. It can be frustrating since you may have been a financially responsible person your whole life and now faced with debt that could take 10 to 20 years to pay off.
Credit card debt can happen to people of all ages, backgrounds and income levels. Many people find themselves in major credit card debt because they lost their job, got a divorce or their business went under. In times like this, you need to use credit cards to stay afloat, but by the time the dust settles and a couple more curve balls have been thrown at you, you are in over your head.
You may try your best to keep up with payments, but soon the interest rate goes up and the minimum payment is crippling. Along with other bills, you will inevitably know something must be done. It is at this time you will likely consider two options, a debt management plan or bankruptcy.
At first, you might consider a debt management plan because it may feel like you are still honoring your accounts as promised and you are somebody who believes there is a stigma with bankruptcy. But it is a good idea to look at both and see what would be best in your case.
Debt management plan
A debt management plan is a way to have your unsecured debt from credit cards combined by a credit counseling agency to whom you make one monthly payment to. The agency will then send each creditor a little bit of your monthly payment. The time it may take you to pay back each creditor in full could take as much as five to 10 years and your monthly payment could be high. You can expect to have a fee added on to your monthly payment amount for the work the counseling agency did. If you fail to make payments, the creditors will still come after you for payment, not your credit counseling agency.
Bankruptcy
There is no reason to feel as bankruptcy is a last resort or something that is only reserved for people with no financial responsibility. You may not only be surprised by the advantages you can get from bankruptcy, you may find out it is an option millions of people have used to get themselves back on track.
With bankruptcy all your unsecured debts will be forgiven. Once you start working on your bankruptcy, an automatic stay will be put in place with your creditors. This means they will not be allowed to contact or harass you for payment. If you file for Chapter 7 bankruptcy, you will not have any type of payment plan. If you file Chapter 13, you may have a payment plan that lasts three to five years which will depend on your income and expenses.
A couple of considerations to be aware of with bankruptcy is that not all your debts will be forgiven. While most unsecured debt like credit cards are forgiven, your mortgage, student debt and back child support will not be part of the bankruptcy. Even though bankruptcy will knock down your credit score, you can begin working on it immediately and can have it rebounding in as little as one to three years.
If you are at the stage in your financial situation where you are considering a debt management plan, you may first want to have a consultation with an attorney who can let you know of the advantages you can have by filing for bankruptcy.