Debtors who are unable to pay off their debts are frequently faced with phone calls and demanding letters from their creditors who seek repayment of the loans they have defaulted on. In most cases, these phone calls and demand letters create undue pressure on the consumer and may cause them to make decisions like filing for bankruptcy at that point you should probably contact a bankruptcy lawyer. Bankruptcy allows consumers to get rid of their debts but this poses some long term risks to consumers.

In most cases, creditors would love to keep customers as paying members. However, filing for bankruptcy can significantly affect the credit rating and credit score of the customer thus posing a threat to both parties, especially the consumer whose ability to purchase items in the future will significantly be lowered.

Before choosing bankruptcy, debtors are more often than not, advised to consider other options. This includes loan workouts which ensure that an agreement can be reached with creditors on a modified repayment plan that will be favorable to both parties.

As a debtor, there are several options you can explore to work out your debts aside from bankruptcy. This article has been put together to give you an insight into how to better manage your debts using less drastic alternatives.

Repayment Options

When as a consumer you are late on your payments, several factors can come into play. In most cases, the creditor who is interested in recouping his or her money may proceed to send collection agents after you. Collection agents in most cases will explore every possible avenue to ensure that the owed amount is repaid. The action of the collection agent may ultimately frustrate you into exploring options to deal with the accrued debt. While most people are familiar with filing for bankruptcy, other options like repayment options are less drastic and can be tailored to offer you a better chance at maintaining your finances while reaching a favorable agreement with the creditor.

In the event of repayment options, a debtor can simply approach the creditor to renegotiate the terms of payment. That is, a debtor will seek to pay a lower amount of money for an extended time frame. Such agreements may be readily agreed to by the creditor as this goes a long way to prove that the debtor is willing to make repayments to offset their loan debt.

Credit Counseling Organizations

Of course, when you accrue debt either on purchases or other items, you should consider paying the bills when due. However, life can be unpredictable and you may find yourself unable to service the loan which you felt comfortable taking on earlier. A creditor in most cases does not care about the curveball or the bad hand life has dealt you, instead, the creditor is more interested in having his or her money when it is due.

When payments become late, creditors choose several options to get back their money from you. If you are in a bad situation such as this, there is a need to consider all the possible options that can get you out of this mess, one of which is a credit counseling organization.

Meeting with a consumer credit counselor means seeking help on how best to repay the loan which you have taken out. A consumer credit counselor can work with you to arrive at a favorable repayment plan. However, when choosing a consumer credit counselor, it is recommended that you be on the lookout for trustworthy counselors as most people prey on unsuspecting debtors by promising them a clean slate for a flat fee or an upfront charge.

The consumer credit counselor is expected to meet with the creditor to present them with a reworked repayment plan (involving lower payments for an extended time, lower interest rates, or lower fees) which are expected to be favorable to you and also guarantee that the creditor can get the money due to them eventually.

Be on the lookout for consumer credit counselors who make outrageous and bogus promises. In most cases, they may end up leaving you in worse shape than you were in before contacting them. Should you choose to work with a consumer credit counselor, be sure to choose one who has a track record of success in helping people get out of financially bad situations.

Workouts

In most cases, a loan workout is one of the best options to choose, especially when you are financially incapable of paying your loans on time. Granted, taking a loan out, whether mortgage loan, credit card loans, debit card loans, student loans or others can be tricky. However, failure to pay when due can be trickier.

When considering your options, you may want to consider a mutually negotiated modification to the loan terms, a process which is known generally as a loan workout.

A loan workout is a great option for most people because it allows them to live their life while enjoying less stringent conditions to meet their loan payments. Also, a loan workout is a less drastic choice to make, especially in the face of filing for bankruptcy.

The loan workout, that is, the agreement that has been worked out between the creditor and the debtor for the repayment of the loan can be negotiated without the harassment of debt collectors. Simply put, it is easier to maintain and service loans using this method.

In some cases, loan workouts may also be referred to as extension or loan composition.

A composition is a contract that is entered into by two or more creditors and a debtor to take partial payments of the loans which are owed in full satisfaction of their claims.

An extension of the contract, however, is entered into by a debtor and more than one creditor. The creditors, in this case, agree to extend the recollection time for the payment of the loan that is owed.

In some cases, an agreement may come in the form of both an extension and a composition. An agreement may even allow the debtor to pay a lesser amount over a longer period of time.

By choosing either of these means of dealing with unpaid loans, debtors stand a better chance of dealing with the stigma associated with filing for bankruptcy.