Debt Repayment Options Simplified

debt repaymentDebt repayment seems like such an antique concept. We live in an era where even governments struggle with the idea of actually paying back what they have borrowed, rather than adding to the tab for a virtual eternity.  Unfortunately, none of us are governments. This means that we do have to pay the piper at some point in time, and in some way. Debt repayment is in your future, whether you like it or not.

Debt Repayment Options Abound

It does not mean that there are no options available for debt repayment.  In fact, there are several of them. Each debt repayment option comes with its own set of moral and financial pluses and minuses. As a general principle, debt repayment to others is on the same plane as others paying back the money we lend to them. It is a critical part of the social contract, which keeps the wheels of western civilization turning. There are special circumstances where this laudatory rule gets suspended, but it should be recognized that society cannot long endure if non debt repayment becomes an option for a large fraction of debtors.

What if Debt Repayment is Not an Option

Sometimes debt repayment feels like its not an options – it’s so overwhelming we just don’t know where to begin.  Assuming however, that someone finds themselves in a position where they simply have more demands than resources to meet those demands, alternatives for debt repayment need to be explored. A reduction in standard of living on a temporary basis can free up additional resources for debt service. This is a very good plan for those who are suffering merely temporary setbacks, and expect to stay solvent in the long term.  Deprivation as a long term strategy for debt repayment, much like dieting, doesn’t really work.

Debt Repayment Thru Bankruptcy

Declaring bankruptcy can free oneself from all or most of one’s debts, but does so at the expense of being unable to borrow significant (or insignificant)  sums of money for quite some time into the future. Between these two polar opposites lie the possibilities of a negotiated settlement of one’s debts, in which a creditor agrees to “settle” the debt for an amount smaller than actually owed and stop hounding the unfortunate borrower ever again.  This seems like a more middle of the road way to debt repayment.

This way of debt repayment seems like a good bargain on the face of it, but it needs to be remembered that this will be reported as a “settlement” to the credit rating agencies, as opposed to “payment in full”. In other words, it still costs money to “settle”, but does almost as much damage to one’s credit rating as an actual default or bankruptcy. Debt repayment is a game with rules that few people truly understand. Always make sure that you know what you are doing when you do anything but debt repayment in full.

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