Top 5 Ways to Restructure Debt

Debt restructuring is a term used to describe when a lender and a borrower revise the terms of a loan agreement. Making modifications to a loan is usually necessary only when the borrower is at risk of defaulting on their loan due to financial hardship. It is typically requested by the borrower, but may be offered by the lender if they see that the borrower is struggling to make on-time or full payments.

5. File Bankruptcy

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Bankruptcy should be considered a last resort, but is often the right choice to make if you’re struggling to keep your head above water, and there is no light at the end of the tunnel. Contact a bankruptcy attorney to discuss the two types of bankruptcy—chapter 7, which eliminates debts but often requires that you sell all assets; and chapter 13, which sets up a manageable payment plan that includes lowering principal balances, reducing interest rates and consolidating debts.

4. Personal and Home Equity Loans

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Use a personal or home equity loan to pay off your debt. By using a loan with a reasonable interest rate, you’ll be able to pay off other loans with higher interest rates. If you’re able to secure a loan with a longer term, combined with a lower interest rate, it may result in a lower monthly payment that will fit into your budget. As long as you make the required minimum monthly payments, your credit score won’t be affected.

3. Consolidate Your Debts

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Debt consolidation is handy when you are juggling multiple loans. Multiple loans mean multiple payments and varied interest rates, both of which lead to disorganization, missed payments and financial distress. With debt consolidation, you have the opportunity to consolidate all of your small debts into one large debt. As a result, you’ll have one fixed interest rate and fixed monthly payments. Additionally, a consolidated debt loan enables you to pay off your principal balance faster, which means paying less.

2. Credit Card Counseling

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Credit card counseling is a valuable tool in helping you to manage your debt and bring it back down to a manageable size. Credit card counselors will work with you to establish better money management techniques and feasible financial goals. In addition to providing you with advice and money management skills, a credit card counseling agency can even assist with specific actions to manage your debt, such as applying for debt consolidation or filing for bankruptcy.

1. Restructure Your Loan

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Contact your lender and explain your financial situation. Whether you’re unemployed, under-employed or dealing with an increase in expenses or medical bills, your lender can most likely review your loan and make recommendations to keep your loan active. After all, it is in their best financial interest to keep receiving payments from you, even if those payments are smaller amounts. Interest rate reductions, forbearance plans (special terms for circumstances involving financial hardship), or moving payments to the end of your loan agreement are all common methods of loan restructuring.

If you are having difficulty paying for credit card debt, have a read of our Top 5 Tips for Credit Card Debt.

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