Like Chapter 13, Chapter 11 bankruptcy is a reorganization. Unlike Chapter 13, Chapter 11 is mainly for businesses and related to business debt.

“The filer can be a sole proprietor, S corporation, an LLC,” Robert W. Dremluk, a New York-based partner at the law firm Culhane Meadows, told MagnifyMoney. “Any format is okay, but the [filer] will primarily be addressing the business-related activities of the individual.”

While many business owners file a voluntary petition for Chapter 11, creditors can also file against a debtor, which turns it into an involuntary petition. Unlike Chapters 7 and 13 bankruptcy, there isn’t usually a trustee appointed at the start of a Chapter 11 filing. Instead, after filing, the business owner becomes the “debtor in possession” (DIP), allowing the debtor to retain control over the business assets during the term of the reorganization, which can take months or years to execute. This also allows them to make decisions about what to do with assets.

As an example, Dremluk mentioned a retailer who can choose to close underperforming stores and have a sale on the inventory but to continue operating successful locations.

Once a business owner has filed a petition for bankruptcy, an automatic stay is enacted, ensuring that collection activities, repossessions and foreclosures are suspended. In some cases, however — such as when the underlying property in question isn’t necessary for the reorganization or the owner has no equity in it — a creditor may request that the court lift the stay and allow them to foreclose.

While they are the debtor in possession, the business owner has 120 days to create and submit a plan for reorganization. The plan, which will outline how each class of claims (secured and unsecured) is to be handled, must then be filed with the court. A disclosure statement is then sent to creditors to allow them to evaluate the plan. Creditors who, according to the plan, will not get the full value of the debt they are owed or whose contracts are going to be modified under the reorganization, can vote against the plan.

When developing the plan, a business owner doesn’t go it alone. In addition to having their attorney to help, there is also a creditors committee comprised of representatives of the seven largest unsecured creditors. The committee helps to develop the plan and investigates the conduct of the business owner to help ensure proper management of assets.

Generally, a business owner’s personal assets are left out of a Chapter 11, but, as Dremluk noted, that’s not always the case. “Sometimes, an individual personally guarantees or pledges personal assets on behalf of the company, in a closely held company. An aggressive lender may call collateral, it depends,” he said. In addition, if the business is a sole proprietorship or a partnership, personal assets may be at risk.

When to consider filing Chapter 11

According to Dremluk, there are a number of events that can prompt a company to file for Chapter 11. In some cases, it could be due to the company facing financial difficulties or operational issues.

“Companies [sometimes] end up considering bankruptcy because they are in financial distress, and part of the reason for that may be that management is unable or unskilled in grappling with problems the company is facing,” said Dremluk. Whether the issue is that company management isn’t proficient at solving problems or that the company has overexpanded and isn’t able to correctly operate a business this large with their current structure, Dremluk said that bankruptcy gives them the opportunity to correct their course.

“Bankruptcy gives the business a chance for a pause and to reassess what they’re doing and how to do it better,“ he said.

What debt is erased in Chapter 11?

“Secured and unsecured debt whether public or private can be discharged,” said Dremluk. Unlike Chapter 7 bankruptcy, where unsecured creditors often walk away without receiving payment, Chapter 11 allows a business to set up a reorganization that pays creditors, although sometimes they receive less than the company owed them or the debt is paid over a longer period of time than the original contract specified. While secured creditors are prioritized in the reorganization, vendors who supply services and materials that are integral to the ongoing operation of the company (called “critical vendors”) may see their unsecured debt getting paid off during the bankruptcy.

What makes Chapter 11 so powerful is that it allows a company time to get their business on the right footing. With Chapter 11, said Dremlock, “[a] company can deal with asset/secured claims and sell assets over a period of time instead of in fire sale situation.”

The first step a filer should take is reaching out to an attorney; as Dremluk noted, it is mandatory that a business owner filing for Chapter 11 “must be represented by counsel.” In addition, because each district court may have its own added requirements, an attorney can ensure you file everything necessary.

Business debtors who wish to file will be utilizing a multitude of forms in the 200-series, beginning with Official Form 201, “Voluntary Petition for Non-Individuals Filing for Bankruptcy.”

Next, business owners need to compile a list of the names and addresses of all their creditors. This list should be formatted however the court in your district requires.

Another official form that needs to be completed is Form 204, “Chapter 11 Cases: List of Creditors Who Have the 20 Largest Unsecured Claims Against Debtor and Are Not Insiders.”

“The list of creditors is submitted to the court for purposes of selecting a potential creditors committee,” said Dremluk. “You don’t want people on that committee who are conflicted because they are an officer or shareholder.”

Finally, for those business owners required to file periodic reports with the Securities and Exchange Commission (SEC), Form 201A, “Attachment to Voluntary Petition for Non-Individuals Filing for Bankruptcy Under Chapter 11,” should be completed.

Within 14 days of filing Form 201, the debtor will need to file the rest of the forms for their bankruptcy, which are:

• Official Form 206, “Schedules of Assets and Liabilities”
• Official Form 206A/B, “Schedule A/B: Real and Personal Property”
• Official Form 206D, “Schedule D: Creditors Who Have Claims Secured by Property”
• Official Form 206E/F, “Schedule E/F: Creditors Who Have Unsecured Claims”
• Official Form 206G, “Schedule G: Executory Contracts and Unexpired Leases”
• Official Form 206H, “Schedule H: Codebtors”
• Official Form 206Sum, “Summary of Assets and Liabilities for Non-Individuals”
• Official Form 202–Declaration, “Declaration Under Penalty of Perjury for Non-Individual Debtors”
• Official Form 207, “Statement of Financial Affairs for Non-Individuals Filing for Bankruptcy”
• Director’s Form 2030 (unless your court requests otherwise), “ Disclosure of Compensation to Debtor’s Attorney”

If the business owner declaring Chapter 11 meets the criteria to be considered a small business debtor, they must also include a balance sheet, statement of operations, cash-flow statement and federal income tax return. If the small business owner doesn’t have these documents, they can submit a statement under penalty of perjury that they have not prepared the documents or filed a federal tax return.

To determine whether a filer is a small business debtor, the criteria they must meet involves two elements. First, it must be ensured that the debts are no more than $2,566,050, and the business cannot be focused primarily on owning or operating real property. Second, a creditors’ committee has either not been appointed to the case, or has not properly provided necessary oversight, as determined by the court.

When filing, business owners can expect to be charged a $1,167 filing fee and $550 as a miscellaneous administrative fee. On top of that, a debtor must pay attorney fees, which can get weighty.

“Chapter 11 has become too expensive for most companies to file, and lenders have also reached the point in their analysis where they don’t want to support a company for a long time. They’d rather have a company liquidate and take their losses,” said Dremluk, who added that fee arrangements and advanced budgets for attorney fees might help a filing company’s chances of success.

Within 120 days of petitioning the court for Chapter 11 bankruptcy, the company needs to submit its plan for reorganization. The plan will generally include provisions for how the reorganization will be implemented, including how business will continue, how funding will occur, how each class of creditor will be paid, the interest paid to them and so on.

One important aspect of the reorganization plan is that it needs to be in the best interest of creditors in order to get approved. “The plan needs to be in the best interest of creditors, so treatment of creditors under the plan must be better than they’d get in a liquidation,” said Dremluk.

Dremluk added that, ideally, through the reorganization “the company will be able to discharge debt, resolve claims and emerge with a cleaner balance sheet and a lot of its other issues behind it.” Small businesses can submit this plan on Form 425A, “Plan of Reorganization for Small Business Under Chapter 11,” along with the disclosure 425B, “Disclosure Statement for Small Business Under Chapter 11.”

Conclusion

The word bankruptcy conjures a lot of different feelings for people and very often those feelings are negative. But when it comes to a business filing Chapter 11, it’s hard not to see the positive potential in allowing that company the time and space to reorganize and find effective ways to deal with the problems that helped push it into financial distress.

Still, bankruptcy isn’t the right choice for every business owner, which is why it’s important to have an experienced attorney working on your case.

Borrowers who have defaulted on debts should keep an eye on the mailbox. Once a debt collector contacts you for the first time — usually via a phone call — they have five days by law to send you a debt validation letter. Sometimes this letter serves as the first communication from the collector. Its purpose is to make sure that the debt in question actually belongs to you.

The rules governing these letters are laid out in the Fair Debt Collection Practices Act (FDCPA), a federal law that defines the limitations on third-party debt collectors who are tasked with collecting debts on behalf of others. The act’s provisions on handling defaulted debt stipulate that debt collectors can’t use “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” This means that they must have validation to support their requests for payment from a particular person. A debt validation letter is often called a “G notice” by those in the industry because the rules for it are laid out in section G of the FDCPA.

The rules are meant to protect consumers from errors caused by mistaken identity and identity theft. While identity theft is the more attention-catching issue, many errors also arise from mix-ups among people with common names — a particular problem with family names from certain cultural groups — and particular naming conventions, such as fathers and sons with Jr. and Sr. suffixes. Mistakes also occasionally occur in the amounts being collected and in record keeping indicating whether or not the debt has already been paid.

The debt valuation letter must contain the following information:

1. Name of the creditor
2. Amount to be collected
3. That the debtor has the right to dispute the debt, which must be done in writing within 30 days
4. That you can request the identity of the original creditor in writing within 30 days, if it’s different from the current creditor
5. That once you have disputed the letter in writing within 30 days, no further action can be taken to collect the debt until validation is provided

Item No. 4 on the list is a particularly important thing to understand when debt may be packaged and sold, repackaged and resold, ad infinitum. An example is a letter telling you that you owe a debt to “Midland Credit,” a company you’ve never heard of. Before you become alarmed that there’s been a mistake, request the name of the original creditor from the debt collector. They might inform you that Midland Credit is actually a Capital One card, which will clear up your confusion. It’s important to realize that no collection activity can go forward until they supply that information in response to your request, providing you a reprieve until all uncertainty is cleared up.

How to request a debt validation letter

Debt collectors must send out your debt validation letter within five days of the first time they contact you. This means that you should receive it a few days after that, unless if the debt collector has an incorrect address for you, it may take longer for the letter to get to you (if it arrives at all).

If you don’t receive the letter when you expect it, you still have the right to dispute the debt in question. Imagine you get a phone call from a debt collector, then two weeks go by without a letter arriving in your mailbox. Your best step to take at this point is to call the debt collector and request the letter.

In many instances, the problem is that they are using an old address for you. If that is the case, the debt collector will likely ask to verify your address over the phone. Some debtors who aren’t prepared to deal with the debt may hesitate to verify their address. Certainly no one can force you to provide your current address to the collector, but withholding it can negatively impact you down the line when you’re finally forced to account for the debt.

“Some people feel they don’t want to give their address and be harassed,” said Joshua Cohen, a consumer protection attorney at Cohen Consumer Law. “If that’s how you feel, then you should go to a consumer attorney to know all your rights. There’s nothing worse than going in front of a judge and saying, ‘I didn’t get my letter.’ And then having the collector say, ‘We didn’t have the right address and he wouldn’t verify the address.’”

Keep in mind that it’s good practice not to supply any personal information over the phone until you have verified that the party you’re talking to is a legitimate debt collector.

Responding to a debt validation letter

If you would like to ask for validation of the debt after receiving a debt validation letter, it’s a good idea to use a template to make sure you’re expressing yourself clearly in a way the debt collectors will understand. Send the letter to the debt collector at the address provided in the debt validation letter. There are many templates for such letters available online, including some by the Consumer Financial Protection Bureau (CFPB).

The letter you write will depend on your response to the debt validation letter. For instance, you will write a different letter if you believe the debt is not yours versus if you simply need more information before you can figure that out. If you believe the debt is not yours, though, remember that debts are bought and sold, so the fact that you don’t recognize the creditor’s name does not mean there has been a mistake. It’s best to find out all information possible before you conclude that you’re being held responsible for someone else’s debt.

The CFPB advises that you make sure to find out all of the following information, some of which should be provided in your debt validation letter and some of which you may have to ask for in your response:

• The name and contact information of the debt collector
• The total debt amount, including any fees such as interest
• The reason for the debt and the date it originated
• The identity of the original creditor
• Any information the collector is using to justify their conclusion that it is you who owns the debt

It is a good idea to keep a copy of this letter and to send it via certified mail with a return receipt, so you have a paper trail of your communication with the debt collector.

What happens after you’ve sent a validation request?

Once you’ve sent your validation request, the debt collector does not have a deadline to respond. It’s a common misunderstanding that the collector only has 30 days to respond to a validation request, but in truth, they can take as long as they want. That open-ended time frame is a benefit for debtors since the debt collector can’t contact you during the period that they’re working to validate the debt.

“If they take six months to validate, that’s six months they can’t bother you,” said Cohen. “The only thing they’re allowed to do is to say, ‘We’re not collecting this debt anymore.’”

Relinquishing the debt collection altogether does indeed happen. As a general rule, if the debt collector doesn’t respond to the validation request within 90 days, then you’ll likely never hear from them again.

If they do respond, they will provide some amount of information, but often not as much as the debtor wants or has asked for. Unfortunately, the debt collector is not required under the FDCPA to send the debtor a full accounting of the debt, the promissory note or the full agreement.

Many consumers assume that debt in collection cannot go forward unless the debt collector can provide the promissory note, but that is not the case. The debt collector is permitted to submit validation of the debt that basically amounts to a statement from the creditor saying you, the debtor, owe the amount in question.

Once the debt collector has responded to your request for information, they are allowed to resume collection efforts. If you still doubt whether the debt is yours upon receiving whatever information the debt collector provides, you can take action to try to clear up the confusion. If the debt collector can’t provide proof, you can try calling the creditor directly at the contact number provided on your credit report. There are times that a debt collector will decide not to pursue your debt at this point, or they may keep pursuing it until you can definitively prove it’s not yours.

“Debt collectors want to do their job the right way,” said Cohen. “Despite what people think, they want to do it the right way. The more proof you send about the debt not being yours, the better they can do their job and talk to the creditor about not making you pay the note.”

However, if you aren’t able to get this proof and you feel confident the debt isn’t yours — whether you’ve been a victim of identity theft or there’s been a mistake — you should go to a consumer attorney. You can dispute the debt with the creditor and with the credit reporting agencies, which an attorney can help you with. The problem may resolve itself, but if it doesn’t, you’ll probably have to proceed to litigation.

“If the debt isn’t legitimate, the debt collector is the least of your problems,” noted Cohen.

Conclusion

Debt validation letters bring a sense of order to the process of debt collection and provide important protections for those who are being asked to pay large sums by debt collectors.

Those who owe a debt but can’t pay will need to deal with that fact sooner or later; the receipt of a debt validation letter may be a good motivator to contact a consumer attorney to understand your options. Looking to an attorney is also a good idea if you’re being pursued for a debt you’re certain isn’t yours. The debt validation letter will be one of the first indications that something fishy is going on.

If you find yourself with a growing credit card balance and interest charges, the stress can be overwhelming. Sometimes making the minimum payments is difficult or impossible. While credit card debt forgiveness can be rare, there are some options to manage or reduce your debt.

If you’ve fallen behind on your credit card payments, a good first step is to seek the advice of a reputable credit counselor. They can help you organize all your outstanding bills and finances. They can also help craft a manageable payment plan. The Federal Trade Commission (FTC) has tips to find a reputable credit counselor.

When your account is more than six months past due, a credit card company may refer the case to a collections agency. Collectors will make repeated attempts to obtain all, or some, repayment from cardholders. If that’s unsuccessful, they may file a lawsuit against the customer and could garnish wages to recoup some funds.

But you have some options if you discover you cannot repay your credit card debt.

Pros and cons of credit card debt forgiveness

Pros

You could reduce outstanding debt, negotiate a more manageable repayment plan or agree on debt settlement. By mitigating your outstanding debt, you can decrease the outstanding balance and avoid incurring additional interest. Also, by keeping your accounts from going to collections proceedings, your credit score may take a lighter hit and you can avoid an escalation of collections proceedings.

Cons

In some cases, the collections agency and credit card company may agree to seek a settlement with the debtor and accept a portion of the debt, but there could be ramifications. If the rest of the debt is discharged, the IRS may consider the forgiven amount a gift and require you to pay income taxes on that amount. With both Chapter 13 and Chapter 7 bankruptcy, the filing will appear on your credit report, which could impact the terms and rates for future loans and credit.

Also, costs associated with discharging or settling debt can add up. Bankruptcy involves court and attorney’s fees. Settling debt will require you to pay a potentially large chunk of money. There are typically fees associated with using a settlement agency, too.

Death

If a borrower dies or the student who the loan was taken out for dies, a federal student loan will be discharged.

Total and permanent disability (TPD) discharge

This must be documented by a physician, the Department of Veterans Affairs or the Social Security Administration. It must establish that you are “unable to engage in any substantial gainful activity due to a physical or mental impairment,” according to Federal Student Aid’s website. To qualify, individuals must submit a TPD application, which is subject to review and approval.

Bankruptcy

If an individual files for Chapter 7 or Chapter 13 bankruptcy and proves to the court that repayment would be an undue hardship on themselves and their family, they may be eligible to discharge the entire remaining loan balance, a portion or negotiate to a lower interest rate or revised repayment schedule.

School closure

If the school you attend or recently attended (usually within 120 days) closes, you may be able to discharge some or all of your federal student loans. In this instance, contact your loan servicer for help.

Public Service Loan Forgiveness

This highly anticipated federal loan relief program is tied to employment, but it has gotten off to a rocky start. The Department of Education set aside $350 million to provide tax-free debt relief to graduates who work in government or public service jobs, but the program has detailed eligibility requirements.

While the program holds promise, the review process has been slow. Only a handful of claims have been paid out. Since fall 2017, nearly 30,000 applications for forgiveness have been processed, but only 96 borrowers have had debt discharged. The program is so mired in problems that the federal government put in place a temporary initiative to try to correct it.

Loan modification

Another option for borrowers with outstanding federal or private loans could be modified repayment plans, which may allow for fixed or graduated payments over a period. Contact your loan servicer to discuss potential options.

To keep your home and avoid foreclosure, you need to pay your mortgage on schedule. But personal hardships, such as job loss, illness or divorce, can sometimes make it difficult for a homeowner to make payments. If you get behind, it may be possible to negotiate a repayment plan with your lender or obtain some form of federal or state mortgage assistance.

Here’s a look at different ways to manage mortgage debt.

Bankruptcy

In some cases, it may be advisable for a homeowner to file for bankruptcy protection, either by declaring Chapter 13 or Chapter 7 bankruptcy. When you file for either Chapter 13 or Chapter 7, the petition halts collections against most of a debtor’s property, including foreclosure proceedings.

But there are important differences: Under a court-approved Chapter 13 plan, the homeowner is approved to pay back an agreed-upon amount of outstanding mortgage payments and resume a normal schedule. Under Chapter 7, the bank may still opt to foreclose on a home as a way to liquidate assets and repay creditors, including the mortgage lender.

One advantage of Chapter 13 is it gives homeowners an opportunity to avoid foreclosure by catching up on overdue payments with a payment plan, the U.S. Courts website notes.

Mortgage relief programs

Depending on where you live, state or federal programs may exist to provide mortgage assistance and relief. To assess the programs, homeowners should contact a Department of Housing and Urban Development-approved agency in your area. It can help you determine your eligibility for any programs that match your location and circumstances, as well as other foreclosure avoidance options. To assist homeowners, HUD provides a searchable database on its website to refer homeowners to nonprofit agencies by region qualified to provide services.

Some federal programs and options for homeowners include:

Home Affordable Refinance Program (HARP)

This program, set to expire at the end of 2018, allows qualified candidates to refinance with lower rates or more favorable terms. Homeowners must be up to date on their mortgages, have little or no equity in their property and have a loan from Freddie Mae or Fannie Mae that originated on or before May 31, 2009.

Hardest Hit Fund

In 2010, the federal government created the Hardest Hit Fund and allocated money to 18 states and the District of Columbia. The federal government has allocated billions to the program, which is set to expire at the end of 2020. Funds can be used for mortgage repayment assistance, to pay down second mortgages, relocation assistance or to reduce your mortgage balance.

Servicemembers Civil Relief Act

Under this law, the federal government offers some protections and programs for active-duty service members, as well as their dependents, who may experience difficulty paying their mortgages.

Mortgage modification

Homeowners with regular income to consistently service their loan may be able to work with their lenders to revise the terms of their loan. That could result in a modified payment schedule or new terms.

Forbearance

If you don’t qualify for a mortgage assistance program and you’re unable to negotiate a modification with your lender, you may be able to propose a forbearance period, which allows you to take a break from making your regular payments, such as a six-month respite. The difficulty with forbearance can be a homeowner’s ability to catch back up because, when the break is over, they’ll need to repay the outstanding mortgage payments and resume a normal payment schedule.

If you owe more in taxes to the IRS than you can afford to pay, you may be eligible for some debt forgiveness or relief.

Individuals should contact the IRS or discuss their situation with a tax professional. They can also contact the Taxpayer Advocate Service, an independent service that works with the IRS to help taxpayers resolve problems. Another option is to contact a low-income taxpayer clinic in your area or consider the IRS’ Fresh Start Program.

Here are some things to consider for your tax debt.

Offer in compromise

The IRS has something called offer in compromise, which is an agreement between a taxpayer and the IRS to settle outstanding taxes for less than the full amount owed. To be considered, you need to submit an offer that the IRS finds realistic given your income and assets. Once you submit your offer, the IRS investigates and determines if it will accept it. Typically, individuals who qualify have very low or no income.

To be considered, taxpayers must have filed all their required tax returns. If you’re in bankruptcy proceedings, you can’t take part in the program. The program requires a $186 application fee.

As part of your offer, you need to propose a repayment schedule, which can be a lump sum or monthly installments. If you don’t have enough cash to make the payments, you’re still required to stick to the plan, and you may have to borrow money or sell assets to stay on schedule. The IRS’ website offers more details on the program and the application process.

Installation agreements

For taxpayers who owe up to $50,000, the IRS offers monthly direct debit payments for up to six years to resolve outstanding debt. To qualify, the IRS will ask for some financial information, and taxpayers must sign up through the IRS’ online payment tool. If you need a longer period to pay off the debt, the IRS will likely ask for more detailed financial information.

If you owe less than $100,000, it may also be possible to arrange a short-term repayment plan. For both options, the IRS offers more information. The application is on its website.

Debt avalanche vs. debt snowball: What’s the difference?

Both forms of debt elimination involve paying off debts one at a time. The primary difference between the two forms of debt elimination is which debts are paid off first.

With the debt avalanche method (also referred to as debt stacking), you pay off the debt with the highest interest rate first. With the debt snowball method, which was popularized by Dave Ramsey, author of “The Total Money Makeover” and radio personality, you prioritize the debt with the lowest balance.

Below, we’ve explored the nuances of each method so that you can figure out which one is ideal for you.

How does the debt snowball method work?

The debt snowball method involves taking a look at all your debt balances and paying them off from smallest to largest. You still pay the monthly minimum balance on all your debts, but put an extra, predetermined amount of money each month toward the smallest debt.

“Once you pay off the lowest balance loan, you would take that extra money and move it toward the second lowest balance,” said Forrest Baumhover, a certified financial planner at Westchase Financial Planning in Tampa, Fla. “At some point, you snowball. All of these principal payments that you were paying toward — all of these tiny loans or credit card balances — are now focused on the last remaining one.”

Who is it good for?

People who benefit from regular motivation. Consumers who opt for the debt snowball method tend to see success due to the “little wins” that go with paying off small debts quickly.

“If the difference in interest rates is not that much in terms of the overall savings, I might tell somebody to go with the snowball method just because they get to see progress sooner,” said Luis Rosa, a certified financial planner with Build a Better Financial Future in Henderson, Nev. “They might have smaller balances that they can get rid of in a month or two, and then they continue to be motivated because they can see some progress at the very beginning of the plan.”

The debt snowball method can also be beneficial for people who have a significant amount of debt in various forms. “The way I see it is if you’re starting with a pretty big number, then a lot of little victories will help you along the way,” Baumhover said.

Does it save you money?

Not necessarily. The debt avalanche method typically makes more sense as you save money on interest. But Rosa and Baumhover said people are often better able to stick to the snowball method because of the satisfaction of “little wins.”

Research from Kellogg School of Management at Northwestern University showed that even though the avalanche method typically leads to more savings, consumers who opt for the snowball method are more likely to eliminate all their debt.

Breaking down how it works

Rosa offers this example:

If a consumer only made the monthly minimum payments on the above debts, it would take them 112 months to pay them off, Rosa said. Adding an extra $200 each month would cut that to 44 months.

Assuming the consumer puts an additional $200 per month (on top of minimum payments) toward paying off their debts from smallest to largest, they will have paid off the personal loan by December 2018 if the above scenario begins in October 2018. With the debt avalanche method, the personal loan will not be paid off until August 2019.

How does the debt avalanche method work?

If you opt for the debt avalanche method, you will continue making the monthly minimum payments on all your debts, but you will put your extra monthly allotment toward the debt with the highest interest rate, not the debt with the lowest balance.

“The key differentiator between the avalanche and the snowball [is that] the avalanche is going to be based on the highest interest rates first,” Rosa said. This means that you’ll likely focus on higher-interest debts, such as credit cards, before lower-interest debts, such as student loans.

Who is it good for?

People who are intrinsically motivated and who aren’t as concerned with the “little wins” that go with the snowball method.

“The avalanche method is typically known to be the most efficient mathematically,” Rosa said. “But sometimes the thing that’s best mathematically isn’t the best for you, because your card with the higher interest rate might be your higher balance card, and you might not see any progress for quite a bit.”

Does it save you money?

Typically, this debt repayment method saves you money, Rosa said. Because you are paying off the debt with the highest rate first, you will see more savings in interest paid.

Breaking down how it works

The benefits of the avalanche method can be seen using the same example as above:

If a consumer puts an extra $200 toward their debt each month and pays it off in 44 months (like the above example), they will not have the quick “win” that accompanies the debt snowball method, but will instead save slightly more on interest. The debt snowball method, in this case, has an overall interest savings of $6,496.82, while the debt avalanche method has an overall interest savings of $6,669.64.

Which debt repayment method is best for you?

Both methods can be beneficial strategies for paying off debt. What it typically boils down to is a person’s mindset and long-term goals.

What does Baumhover typically recommend?

“It depends on the type of client that I’m working with,” he said. “For people that need to tick off little milestones along the way to know that they’re actually making progress, there’s a powerful emotional aspect to [the snowball method]. But when you run the numbers, you do pay a little bit more in interest.”

For people who have intrinsic motivation and don’t need “little wins” to stay on track, the avalanche method might be a better option. “If someone really has a focus on just minimizing the amount of interest, then the debt avalanche would probably be what they would want to do,” Baumhover said.

To figure out which method is ideal for your specific financial situation, you can use this calculator.

5 ways to prioritize and pay off your debt

Now that you know the difference between these two debt payoff methods, it’s time to get started. Here are the first steps you should take once you’ve decided to tackle your debt.

1. Review your debts

Rosa said the first thing people should do is list out every single debt they have by name, APR, balance and minimum payment. Then, he suggests using a free online calculator, which allows you to enter all your debt information and compare different debt elimination methods.

This step is crucial for success. “The debt avalanche vs. the debt snowball, neither of those is going to work for someone who’s not willing to take a look at their whole picture,” Baumhover said.

2. Take a look at your spending habits

Once you’ve identified all your debts, take a look at your spending habits so that you can figure out how much money can go toward your debt elimination plan each month. “[People] should really try to set a realistic expectation of what they’re willing to live on in terms of their budget,” Baumhover said.

The most important thing is to be realistic. Don’t say, “I’ll put an extra $1,000 toward debt each month” without actually taking a hard look at your finances to see if this is possible. You’ll be setting yourself up for failure, Baumhover said.

“It’s kind of like trying to lose 50 pounds,” he said. “It’s not realistic to do it in a month, but if you say, ‘Maybe I need to do it over a year and a half, and I can afford to lose 3 pounds a month,’ then that’s a little bit more sustainable.”

3. Decide which debts you’ll prioritize

This is the point at which you should figure out which debt elimination plan is ideal for you. Are you the type of person who would benefit from small wins each month? Does the idea of eliminating three of your eight debts quickly appeal to you and sound motivating? If so, the debt snowball method is likely the right option for you.

If you have a history of diligence and determination and don’t think the “little wins” would do much for your motivation, then the debt avalanche method might be a better option for you as it’ll lead to more savings.

4. Get advice from an expert

If you’re struggling to prioritize and pay off your debts, consider contacting a financial expert such as a certified financial planner or a nonprofit credit counselor. They can help you take a big-picture look at your finances and offer advice on which strategy is better for you.

5. Stop racking up debt

Rosa said he often sees consumers begin a debt elimination plan and continue racking up credit card debt. This can ruin a debt elimination plan.

“Some people continue to use the cards,” Rosa said. “For example, they might be going after rewards points. The system only works if you no longer use the cards.”

But Rosa added that you shouldn’t necessarily close all your credit cards since this can have an impact on your credit score.

“If you have a credit card from 10 years ago, a major card like MasterCard, Visa or AmEx, you might not want to necessarily close it, even if you paid it off,” he said. “Just continue to use it occasionally, like for gas, [and] pay it off at the end of the month so that you keep that history.”

Another way to pay off your debt: Debt Consolidation

The avalanche and snowball methods aren’t the only ways to manage your debt.

You could take out a personal loan to combine your existing debts. In doing so, you’ll get to make just one monthly payment on a loan with a lower interest rate and different repayment term. This is called debt consolidation, and it’s another repayment strategy that could save you money on interest.

A debt consolidation loan could help you get out of debt faster by reducing the total interest you pay over time. You also get to choose a new repayment term on your debt. So if you want to aggressively pay down your debt and save more money on interest, you could simply choose a shorter repayment period. Compare up to five offers in minutes when clicking “see offers” below. Note: Clicking “see offers” below does not affect your credit.

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Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

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Regardless of the repayment strategy you choose, you’re taking a step in the right direction by deciding to take control of your finances and eliminate your debt.

What happens to your debt after death?

Untangling exactly what happens to debt after death is a little tricky. It depends on a number of factors, including:

• The type of debt
• Whether someone else is a co-signer or has joint ownership of the property securing the debt
• Whether the deceased lives in a community property state
• The laws of the state in which the person lived when they died

Despite the potential variations, according to Kristin N.G. Dzialo, an attorney and partner at the estate planning law firm Eckert Byrne LLC in Cambridge, Mass., some general concepts apply across the board.

“Debt is specific to the person and doesn’t die with them,” Dzialo said. “If someone co-signed the loan or was jointly or severally liable for the debt, then that other person may be 100% responsible for the debt when the other person passes away.”

Jointly and severally is a legal term that means two or more people are fully responsible for the debt. For example, if two people are jointly and severally liable for a mortgage and one dies, the other person becomes fully responsible for the mortgage debt; their liability isn’t limited to their half of the mortgage.

However, Dzialo noted, “if the debt is just in the decedent’s name alone, then no one else is technically responsible for the payment of that debt.”

But that doesn’t mean the debt just goes away — instead, it becomes the responsibility of the deceased person’s estate.

“If there are assets in the decedent’s estate to satisfy the debt then it should be paid,” said Dzialo. “However, whoever is handling the estate (a Personal Representative, Executor or Trustee) must verify that the debt was a legitimate debt of the decedent.”

What happens to credit cards, personal loans and medical bills?

Credit cards, personal loans, medical bills and utilities are unsecured debts — this means they’re not backed by an underlying asset. In most cases, if the estate does not have enough money to pay these debts, the creditor is out of luck. However, there are a few exceptions.

Someone else can be responsible for repaying these debts if:

• They co-signed the loan application
• They are the deceased person’s spouse in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)
• They are the deceased person’s spouse, and state law requires the spouse to pay certain kinds of debts, such as medical bills
• They were legally responsible for resolving the estate and didn’t comply with the state’s probate laws

“In community property states, this is where it gets dicey,” said Beverly Harzog, a consumer finance analyst and credit card expert at U.S. News and World Report. Different states play by different rules, so it depends on the state and specific wording of the law. In community property states, it’s a good idea to talk to an attorney to make sure everything is handled properly.

What about mortgages, auto loans and student loan debt?

Mortgages and auto loans are of secured debts, meaning they are backed by collateral. Student loans are typically unsecured, but how they’re handled at death is a little different than other forms of unsecured debt.

Mortgages

When someone passes away with an outstanding mortgage, if there are no co-owners who are jointly and severally liable for the mortgage, no co-signers and the property is not located in a community property state, responsibility for paying off the mortgage won’t fall to anyone else. If nobody pays the mortgage, the bank will foreclose on the home.

However, a home is often one of the largest assets in an estate. If the home is worth more than the mortgage balance, the heirs of the deceased may want to work with the lender to resolve estate issues and avoid foreclosure.

Auto loans

Like a mortgage, an auto loan is secured by the vehicle itself. If there is no co-signer and the estate does not have enough money to pay off the auto loan and heirs do not want the vehicle, the lender can repossess the car to satisfy the debt. If heirs wish to keep the vehicle, they will need to pay off the loan balance.

Student loan debt

How student loan debt is handled at death depends on whether it’s a federal or private student loan.

Federal student loans are discharged once the loan servicer receives acceptable proof of death, such as an original death certificate, a certified copy of the death certificate, or a photocopy of one of those documents. This also applies to federal Parent PLUS loans if the parent or student on whose behalf the parent obtained the loan dies.

With private student loans, it’s a little trickier. Many issuers of private student loans will discharge the debt if the student dies; others won’t. If there is a co-signer on the loan, the co-signer may be responsible for the full balance.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), signed into law on May 24, 2018, provided some protections to student borrowers and co-signers. The law prohibits lenders from demanding the loan be paid in full when a co-signer dies and requires that a co-signer be released from their obligation within a reasonable timeframe after receiving notice of the borrower’s death. However, these rules take effect for new private student loans after Nov. 18, 2018, and do not apply retroactively, according to the National Association of Federally-Insured Credit Unions. So co-signers may still be on the hook for private student loans taken out before that date.

4 cases when someone might have to repay your debt

As we mentioned above, there are some cases in which someone else may have to repay your debt. Let’s look at those in more detail.

1. When you have a cosigner

If anyone has co-signed for a loan, they can be held responsible for the remaining debt when you die. This can include:

• Private student loans taken out before Nov. 18, 2018
• Auto loans
• Mortgages
• Credit cards
• Personal loans
• Line of credit

Note that the responsibility for repayment doesn’t apply to authorized users on a credit card. However, when the account owner dies, an authorized user must stop using the card. If they continue making new purchases after the account owner dies, they can become responsible for the entire balance, not just the amount charged after death.

2. When you live in a community property state

If you’re married and you live in a community property state, your spouse may be responsible for paying off the debt with community assets, like savings accounts, investments and physical assets.

Whether you live in one of the nine community property states or not, it’s a good idea to talk to an attorney if you are worried about leaving your spouse with debts they can’t afford to repay. “Some states aren’t community property states but act like it in certain areas,” said Harzog.

3. State law requires the family members to pay certain kinds of debt

Paying medical bills is typically the responsibility of the deceased person’s estate if the estate has enough assets to cover the debt, but some states have laws that make spouses or adult children responsible for paying their parent’s medical bills if the parent can’t pay and doesn’t qualify for Medicare.

However, these laws aren’t always enforced, and they may take the family member’s ability to pay into account. Again, if you’re concerned about burdening your family with medical debt after you die, talk to an attorney familiar with the laws in your state.

4. When the legally responsible person doesn’t comply with state probate laws

When a family member passes away, responsibility for preserving assets, paying debts and distributing the remaining assets to the heirs falls to a Personal Representative. That Personal Representative may be an executor named in the will or an administrator appointed by the court.

If the Personal Representative doesn’t comply with state law, they may become personally responsible for the estate’s unpaid debts. Examples include failing to pay estate taxes, making bad investments or giving assets away before creditors are paid.

3 ways to prep your finances in case of death

If you are worried about leaving a tangled net of debts to your family members when you die, there are steps you can take to ensure your finances are neatly tied up.

1. Have a will

“It’s important to have a will and have your affairs in order,” said Harzog. “Do this while you’re young. You’ll update throughout your life as things change, you get married and have kids, but stay on top of this.”

2. Minimize the debt you carry

Of course, the best way to ensure you aren’t leaving debts for your heirs to deal with is to stay out of debt in the first place.

“Pay your credit cards in full and on time,” said Harzog. “It’s hard enough on survivors without leaving debt behind.”

3. Organize your finances

If you died today, would anyone know what assets and debts you have? Where you bank or how to access your accounts and safety deposit box? Whether you have life insurance? Too often, family members have to spend hours sorting through paperwork trying to figure these things out.

For that reason, many experts recommend maintaining a financial information binder. This binder might include:

• Account numbers and contact information for bank, brokerage and retirement accounts
• Copies of your will, power of attorney or other legal and estate planning documents
• Contact information for family members
• Copies of loan statements, tax returns and other financial information
• Copies of policies for auto, homeowners/renters, health, life, disability and long-term care insurance
• An inventory of physical assets including jewelry, artwork, antiques and other valuables
• Copies of birth certificates and other personal records
• Copies of real estate deeds and titles to vehicles or boats
• Statements for other retirement assets, such as pension benefits statements

The binder can be kept in a safe deposit box or fireproof box at home. Just make sure someone knows how to locate it in the event of your death.

Debt after death: FAQs

Coping with the death of a loved one is difficult enough without the added pressure of collection calls from creditors. Here are more questions and answers about what happens to debt after someone dies.

How much does it cost to file bankruptcy?

In Chapter 7 bankruptcy, a trustee sells off nonexempt assets (such as a second home, cars you don’t use for work, etc.) to settle your debts. After this, your remaining unpaid debts are discharged. Chapter 13 organizes your debts into a three- to five-year plan to repay some or all of your debts, and it generally lets you keep assets you could lose in a Chapter 7 filing. Both types of bankruptcy result in most, if not all, of your remaining debts being discharged. You can learn more about the detailed differences here.

Now, to the costs. The fees mentioned in this piece are accurate as the date of publishing.

Court fees

The court fees for Chapter 7 total $335, while filing for Chapter 13 costs $310. The total amount you pay consists of a filing fee, administrative fees and, if you file Chapter 7, a trustee fee. The filing fees are the same nationwide.

Attorney fee

Beyond court fees, you’ll need to pay an attorney, which will make up the bulk of your bankruptcy expenses. The amount you will pay can vary greatly, from hundreds to thousands of dollars. The attorney’s bill will depend on factors such as your local laws, what type of bankruptcy you file and the attorney’s rates.

Local laws

Where you file for bankruptcy in the country may determine your starting point when budgeting for an attorney. For Chapter 13 filings, the court in each jurisdiction generally sets flat-rate attorneys fees referred to as “no-look” fees.

The fee is “presumed to be reasonable no matter what’s involved in the filing,” said Bob Drummond, the Chapter 13 trustee for the district of Montana. Drummond said more than half of U.S. districts have set no-look-fee thresholds, and the fee varies by district. You can check with your district court to find out if they have a no-look threshold.

The court must approve attorney fees in Chapter 13 filings unless they fall below the no-look amount or the district hasn’t set a no-look threshold. If an attorney charges a rate below the district’s no-look threshold, they don’t have to get the court’s approval. But if they want to charge above the threshold — for example, if they want to charge more for a complex case that will take a lot of their time — the attorney must submit a fee application.

Type of filing

The attorney fee will also vary by type of bankruptcy filing. “There is going to be regional variation, but I think it’s fair to say Chapter 7 is inherently cheaper than Chapter 13,” said John Colwell, president of the National Association of Consumer Bankruptcy Attorneys.

“Chapter 7 is quicker, cleaner [and] faster and therefore … less expensive, generally speaking. With Chapter 13, not only is the debtor in there for three years, four years, five years, but so is the lawyer,” Colwell said. Besides time spent, Colwell said the increased responsibility and liability a lawyer takes on in a Chapter 13 filing compared to a Chapter 7 filing contributes to the higher bill.

Experience

As far as an attorney’s experience factors into cost, Colwell recommends you don’t cut corners to save money.

“When you are shopping for a bankruptcy attorney, you want to look for the best you can afford,” Colwell said.

Colwell recommended shopping around and vetting an attorney before you decide on one. Ask about their track record in bankruptcy cases and why they lost cases — if they have lost any. Colwell advised you also check with organizations such as the Better Business Bureau to see the business’ rating and reviews. If you consider a lawyer based on a referral, ask the person who referred you any questions you might have.

When the attorney is paid

Attorneys involved in a Chapter 7 bankruptcy usually require upfront payment. If their pay becomes a debt due after the bankruptcy filing, it may be discharged and they might not get paid.

With Chapter 13 filings, the attorney may require you to pay some of their fee upfront, and they will generally allow you to pay the remaining amount through your monthly payments in the court-approved repayment plan.

Counseling fees

Regardless of what type of bankruptcy you elect, you must complete two rounds of counseling as part of the process.

You must complete pre-bankruptcy credit counseling within the 180 days before filing for bankruptcy, and it ranges from $10 to $50, depending on where you live.

The court also requires you to complete a post-bankruptcy debtor education course after the petition to discharge your debts. The post-bankruptcy debtor education course fee will likely cost between $50 and $100, depending on where you live.

If you are unable to afford the counseling fee, you can ask the counseling organization for a fee waiver before starting the session. You must complete the counseling with an organization approved by the U.S. Trustee program. You can find a list of approved credit counselors here and a list of approved debtor education counselors here.

Reducing the cost of filing for bankruptcy

Filing for bankruptcy can be expensive. On the bright side, there are a few things you can do to help reduce your cost of filing.

Court fee waivers

Those who may not be able to afford the full $335 associated with filing a Chapter 7 bankruptcy may qualify for a fee waiver. You must fill out an application to waive the Chapter 7 fee.

Waivers are generally not available for Chapter 13 cases, Drummond told MagnifyMoney.

“The reason we don’t see [waivers] as much in a Chapter 13 case is because you have to have income and the ability to make a plan payment,” Drummond said. “If they can do that, they probably have enough income to pay the filing fee, too.” Chapter 13 court fees can generally be paid in installments, described below.

Paying court fees in installments

In either a Chapter 7 or Chapter 13 filing, the debtor can file an application with the petition asking to pay the filing fee in installments. The debtor must propose an installment schedule, and the fee may be paid in up to four installments. When you submit the application, the budget included in your bankruptcy petition must justify your need to pay the court fees in installments.

Pro bono

If you don’t have the funds for a bankruptcy attorney, you may consider looking into pro bono services. There may be an organization in your state that offers pro bono legal services. The Montana Legal Services Association, the Consumer Bankruptcy Assistance Project’s Fresh Start Clinic in Philadelphia and the New York City Bankruptcy Assistance Project all offer pro bono help for Chapter 7 filings for eligible clients.

You can find a list of pro bono resources, compiled by the American College of Bankruptcy Foundation, here. You can also search for organizations that provide pro bono legal services on Pro Bono Net.

DIY (pro se)

You could also forgo an attorney and attempt to complete a bankruptcy filing on your own, but the experts told MagnifyMoney they wouldn’t recommend it.

“Sure you can file pro se. Do I advise that you do it? Hell no. Double hell no,” Colwell said. “The paperwork is extremely complex, and there are even attorneys that don’t file bankruptcy because they think they might screw something up.”

Drummond told MagnifyMoney that pro se cases are more likely to get dismissed or run into issues with assets, resulting in the debtor losing assets they wouldn’t have had they consulted with an attorney.

“In the long run, they may end up saving more money if they hired counsel than if they didn’t,” Drummond said.

Judgment proof

If you are elderly, disabled or a retiree, you may not need to file for bankruptcy at all, as you may be considered “judgment proof” or “collection proof.” That means even if your creditors tried to collect and sued you, they wouldn’t be able to collect because your retirement, Social Security or disability income may be exempt from collection. If you have a large asset such as a home, however, the creditor could place a lien on the property, which may pop up if you decide to sell the asset. Consult with an attorney to verify if you are judgment proof.

The bottom line

It will more than likely cost you hundreds to thousands of dollars to complete a bankruptcy filing, but the benefit of getting your debts discharged may make the cost worth it. The court and counseling fees are mandatory and fixed, for the most part, but you may have some flexibility when it comes to the bulk of your cost: budgeting for an attorney. It’s always worth it to do your due diligence — shop around, compare rates and see if you qualify for pro bono options before choosing counsel.

Debt consolidation is a process that rolls all of your existing debt into one, convenient loan. This means you could go from having multiple loan payments from different lenders with different repayment terms, to having one payment each month with a single lender.

The debt consolidation loan (often a personal loan) is used to pay off all of your other loans. This can be viewed much like a balance transfer — you’re transferring the balance of all of your loans to one bigger loan.

The lender providing your loan typically provides you with a lump sum payment to repay all of your debt, or it works directly with your other lenders to pay off your loans for you as part of the consolidation process.

You can consolidate a wide range of debt types, including:

• Medical bills
• Student loans
• Overdue utility bills
• Credit cards
• Payday loans
• Unpaid taxes
• Bills in collection

Debt consolidation can only really work if you can secure a personal loan with an interest rate that is lower than what you are currently paying on your debts. That way, you’ll save money on interest over time after consolidating.

Finding a lender can be difficult. You may consider local banks and credit unions. But online lenders may have better rates and terms. To help you shop lenders, consider LendingTree’s personal loan tool. Using the tool, you’ll enter some personal information plus what you’re looking for in a loan. Afterward, you’ll receive loan offers, which you can compare to find the best deal for your credit score.

APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

When is debt consolidation a good idea?

Debt consolidation isn’t for everyone, but there are several scenarios where this course of action would make sense for your unique financial situation.

You have a high credit score that could secure you a lower interest rate.

If you’re considering debt consolidation, you’re looking to get a better deal on your new, consolidated loan than what you already have. If you’re paying high-interest debt (such as credit cards or payday loans), consolidating at a lower interest rate could save you money on interest. (Find out how to view your credit score here.)

You have an isolated reason for getting behind on your debt.

Sometimes life happens, and we end up with debts that are unavoidable in the moment. A medical emergency that your savings couldn’t totally cover is an excellent example of this type of unavoidable debt. If you’re working to put a plan in place to stay out of debt in the future and are looking to simplify your debt repayment, consolidation may be for you.

Your consolidated loan offers additional benefits.

This might mean a shorter repayment term or fewer fees to ensure you’re making the most out of a new loan.

You’re exhausted by tracking all of your different loans.

If you have a number of different loans and are running the risk of missing a payment or overpaying due to high interest, it might make sense to consolidate them all to simplify your financial life and help you pay down your debt more quickly.

When is debt consolidation a bad idea?

Although debt consolidation can be a huge help in many cases, there are certain situations where it doesn’t make sense to consolidate your debt.

You have a spending problem.

Debt consolidation shouldn’t be used as a method to free up more cash flow to continue spending. If you find that your debt is largely consumer debt, and that you have no intention of reevaluating your budget or your lifestyle to support your debt repayment journey, consolidation isn’t going to make things better — it’s just going to act as a short term fix to your lifestyle problem.

You’re digging yourself a deeper hole.

Although it’s commonly the case that a debt consolidation loan will come with better interest rates and repayment terms, this isn’t always true. If consolidating your debt is going to force you to repay your loans at a higher interest rate, you’re better off keeping your multiple loans (even if it’s frustrating to juggle them all simultaneously).

You have an average or below-average credit score.

The interest rate you’re able to secure is largely dependent on your credit score. If your score is less than stellar, you’ll have to pay close attention to what interest rate you’re offered, and whether it’s actually a better solution than simply staying the course and paying down your multiple debts.

You’re stuck with new fees.

Sometimes, debt consolidation services have an origination fee of between 1% to 8%. If your ultimate goal is to save money through debt consolidation, this may not work for you.

Don’t just assume that debt consolidation is the answer you’ve been looking for — do your research first. You might find that sticking with your numerous debts and paying them down at their reasonable interest rates makes the most sense until you’re able to get your spending habits in check, or until you’re able to raise your credit score by consistently paying them down.

What are the risks of debt consolidation?

There are several risks and downsides to debt consolidation that you need to be aware of:

It might damage your credit score.

When you first consolidate your debt, you may see a minor dip in your credit score: this is because the lender you’re applying with will do a hard credit inquiry after you fill out your application. If you apply with multiple lenders, multiple hard credit inquiries will push your credit score down. However, you can avoid this problem by getting pre-qualified with multiple lenders, and only filling out an official application with one of them to reduce the number of hard credit inquiries on your credit report.

You may be unable to continue to use lines of credit you previously had available.

By using a debt consolidation service, like a personal loan, your total credit utilization doesn’t go down. So, even though your credit card is magically paid off by your new consolidated loan, that doesn’t mean you get to start racking up more debt. Doing so will cause your credit score to go down, and you may end up in an even stickier situation than you were in before.

You may pay more interest over time.

You’ve likely been paying back your existing debts at a high interest rate for a given length of time. Sometimes, people pay back multiple debts for years before they consider consolidation. Then, when you apply for consolidation, they might extend your repayment term even further — meaning you’re technically paying “extra” interest for the convenience of consolidation. However, you can fix this problem by working to pay your debt back before your repayment period is up and, in turn, driving down your principal (and the total interest you have to pay).

You may have fees.

Some debt consolidation loans have origination fees to process your new loan. Watch these fees closely to make sure they’re not unreasonably high — if they are, consider looking into another debt consolidation method.

You may get a shortened timeline for repayment.

Debt consolidation isn’t usually intended to be a long-term solution. Instead, debt consolidators shorten your repayment timeline. This can be incredibly helpful if you’re looking to get out of debt quickly, but it also may mean higher monthly payments and an increased likelihood that you’ll default on your loan.

If you’ve looked into debt consolidation, and have determined it isn’t the right choice for you, you have several alternatives to consider.

1. Home equity line of credit (HELOC). A HELOC is where you borrow money against the equity you’ve built up in your home. However, if you’re worried about being unable to repay the loan, you may want to select a different alternative option as your home is technically collateral if you’re unable to pay your HELOC. (Learn more about using home equity to consolidate debt here!)

1. Balance transfer. A credit card balance transfer is often a great option for people looking to consolidate their credit card debt. Many credit card companies offer 0% interest for a set period of time, which means you could potentially knock down a notable portion of your debt principal before having to pay interest each month. Be sure to read the terms and conditions regarding any fees or deferred interest clauses. (Check out our pick for the best balance transfer credit cards.)
2. Debt refinancing. If you’re more concerned about getting a lower interest rate on your loans but aren’t worried about managing multiple payments, refinancing might be an option to consider. Through refinancing, you’ll be able to apply for a lower interest rate through your existing lenders, based on your previous repayment history.

Make sure you look at all of your options when trying to consolidate your debt — you never know what you might find, or what’s going to work best for your long-term financial goals. If you do choose to pursue debt consolidation, make sure to shop around with different lenders. Being able to compare different interest rates, fees, and repayment terms, can help you ensure that you’re getting the best loan as you start to move toward debt free living.