Debt Restructuring

If you're having trouble meeting your monthly debt payments or you've stopped paying altogether, you're one of thousands of Americans struggling with their finances. It could be a sign that your debt repayment plans and interest rates aren't working for you. If that's the case, look into restructuring your loans via debt consolidation. In addition to simplifying your monthly payments, it may also reduce your interest rate and extend the time you have to pay off your loan in full. There are several ways you can consolidate your debts.


Debt Management Program

Enrolling in a debt management program (DMP) is one of the more traditional ways of restructuring your debts. A debt counseling agency can advise you financially and help you decide if its DMP is the best option for you.  If so, your debt counselor will help you enroll and will negotiate with your creditors on your behalf to try to get you more favorable borrowing conditions.

Once you're enrolled in a personalized DMP, you'll pay the counseling agency once a month to cover several or all of your payments. Using your payment, the agency will pay each creditor for you so that you have fewer monthly bills to worry about. You will still owe and pay the same creditors, but the counseling organization will act as middle man to better organize the payment schedule.

Debt Consolidation Company

Using a debt consolidation company is another common option for those looking to consolidate their loans. The company performs many of the same services that a counseling agency would; it can help you obtain lower interest rates, fewer fees and better repayment options. But unlike in a DMP, you'll no longer owe your original creditors. Instead, a debt consolidation company typically pays off your creditors in full so that you owe the consolidation company directly.

Student Loan Consolidation

If you're a recent graduate and are struggling with multiple student loans, the student loan consolidation program might be your best option. As with a loan from a debt consolidation company, your original lenders are paid off in full and you are left with a single, larger loan.

Restructuring Unsecured Debts

If you're having trouble specifically with unsecured debts — most commonly credit card debt — you have some other options at your disposal. These options are most viable for individuals whose credit is in good standing. Those with high credit scores will be eligible for the best borrowing rates and therefore have the most to gain from restructuring their unsecured debts.

Speak to a representative about taking out a bank loan. Depending on your credit score, this type of loan can carry a significantly lower interest rate than your credit cards. If so, consider taking out a loan large enough to cover your credit card debts and then use the bank loan to pay off your credit cards. As with most other types of consolidation, you'll be left with a single loan to repay, and you'll be responsible for paying less in interest and fees.

You can apply this same approach using a new credit card rather than a new bank loan: find a credit card that offers a lower interest rate and fees than your current credit cards. Then pay off your outstanding balances with this new card and work towards paying off all your debts at once.

While these options are often useful for restructuring debt, your debts remain unsecured. To get the best borrowing conditions, consider turning unsecured debts into secured ones — ones backed by your property. This could mean taking out a car loan, mortgage or second mortgage. Although this strategy can save you money, it has a major downside: if you fall behind on payments, you risk losing whatever you used as collateral, typically your car or home.

Chapter 13 Bankruptcy

Even after considering or trying one of these options, you may still have more debt than you can handle. In extreme cases, bankruptcy can be a valid option for dismissing or restructuring your debts. Chapter 7 bankruptcy is the most common and forgives all or most of your debts. In Chapter 13 bankruptcy, on the other hand, you are allotted three to five years to get your finances in order. During this time, you'll have to carry out a preapproved restructuring plan to repay all or most of your debts. You gain some leeway in paying your monthly bills after determining what you're capable of paying. Once you successfully complete the plan, your remaining debts are forgiven.

Being in debt can be overwhelming, but you can find a restructuring plan to fit even the direst financial situations. No matter what kind of debt you have or how much you owe, you have options to help you get back on track. If you're unsure what's right for you, start by seeing a debt counselor for advice.