Bankruptcy:
Advantages

• Protects some assets
• Under Chapter 7 – start over debt-free

Disadvantages

• New laws making it more difficult to discharge debt
• Significant damage to credit
• Notice of bankruptcy stays on credit report up to 10 years
• Employment, licensing & other factors may be affected

Credit Counseling:

Advantages

• Stops creditor harassment
• Some creditors agree to lower the interest rates
• One monthly payment

Disadvantages

• Significant damage to credit
• Mortgage lenders tell those that are planning to purchase a home to avoid this option at all cost due to the effect on credit
• Banks will know they are in financial trouble
• Must pay back 100% of debt including interest and fees
• Takes approximately 5-10 years to complete
• Must have sufficient income to meet program guidelines
• Monthly payment often not much less than current minimum payments
• Significant funding from credit card companies

Debt Consolidation:

Advantages

• Easy to manage one lower monthly payment
• Loan interest rate usually much lower
• Credit rating not affected – assumes no payments are missed

Disadvantages

• Debt secured by collateral (usually real-estate & equity)
• Puts assets at risk if the consumer defaults
• Most people reload their credit debt to an equal or higher amount within 2 years

Margin Roll Up:

Advantages

• The consumer is in full control – as one card is being paid off more quickly, minimum payments are made on the other credit cards
• No damage to credit report – assumes no payments are missed

Disadvantages

• Must be disciplined to achieve and not add additional debt
• Must be able to establish an emergency fund without using credit
• Failure to make additional payments coupled with increased balances (due to high interest rates) propels most further into debt

Debt Settlement:

Advantages

• Total debt is reduced by 40% to 60% within 2 to 3 years
• Protection from creditor harassment
• As debts are settled, credit rating improves
• Develops a habit of putting money away each month

Disadvantages

• Credit rating affected at first if client is coming in current on their accounts
• Accounts settled individually as funds accumulate
• In rare cases, creditors may seek legal remedies

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