How to Pay a Fraction of Your Total Debt
- 1). Consolidate your debt. A reliable debt settlement company will consolidate all of your outstanding debt, collect one payment a month from you, and distribute that payment amongst all of your creditors. While this option is not ideal if you have the capital to pay off your debt outright, it can be a good solution if you have large amounts of debt at high interest rates. Work with the Better Business Bureau to find a debt settlement company that has a good track record of providing fair and ethical debt compromises (see reference 1).
- 2). Negotiate with your creditors. If you have some money available to pay your debts, but cannot manage the entire amount, call your creditors and speak with them directly. Depending on your circumstances, and the persuasiveness of your argument, they may be willing to reduce your debt by a certain percentage in exchange for a lump-sum payment of the remaining balance. Ironically, you may have more leverage in reducing your debt amount if you have missed a few payments; as it appears more and more unlikely that you will be able to pay your creditors at all, they may be more willing to accept a lesser payment now. An important thing to remember about debt settlement is that any amount the company removes from your liability, or "forgives," is considered taxable income to you, courtesy of the Internal Revenue Service (IRS) (see reference 2).
- 3). Declare bankruptcy. Usually considered only as a last resort, filing for bankruptcy will ultimately allow you to pay a fraction of your total debt, or none at all. There are two main bankruptcy filings available for consumers, Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, all of your assets over a certain exempted amount are liquidated and paid to your creditors; after that, your remaining debts are fully discharged. If you have substantial assets, or income over your state's median for a household of your size, you may be forced into a Chapter 13 bankruptcy, in which you work out a payment plan for a percentage of your total debt. After your payment plan is complete, your remaining debts are zeroed out, much like in a Chapter 7 bankruptcy (see reference 3). A bankruptcy will generally stay on your credit history for 10 years, during which time it may be difficult to obtain credit and/or find employment in certain industries, such as the financial services industry.
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