Getting rid of the property you want to keep may not be the best option for you. Every loan has its own laws. Usually, you lose a second car or truck, family heirlooms, vacation homes, and any valuable collections when you are in debt. Hence, the need for debt relief, to help you manage or tackle your debt effectively. The relief from debt can help ease debt burdens, but it’s not for everyone. Reading through this article, you will understand debt relief options and the consequences of your choice.
What is debt relief?
Debt relief refers to the restructuring of debt of any type in order to provide partial or full relief to an indebted party. Some debt relief options include reducing the outstanding principal amount, lowering the interest rate on loans due, or extending the loan term.
There may only be a willingness to consider debt-relief measures when the repercussions of a debt default by the obligated party.
When should you seek debt relief?
For people who fall into one or more of these categories, bankruptcy, debt management, or debt settlement. Debt relief may be an option just for you. A person with unsecured debt (credit cards, medical bills, and personal loans). However, may not have the chance of paying them off within five years. No matter how extreme their spending cuts.
Having an unsecured debt total equal to at least half of your gross income shows financial trouble.
If you repay your unsecured debt in five years or fewer, you may wish to consider paying it off yourself. You may need to appeal to creditors or adopt a stricter budget in order to merge debt. However, debt relief may give you a fresh start and the breathing room you need to make actual progress.
Learn extensively about debt through:
- Debt consolidation loan
- Bad debt
- Debt administration
- Differences between debt and loans
- Debt financing
What are the fees you will pay?
Debt relief fees vary depending on the agency of your choice. If your debt is in collections, you need to check which agency owns the debt so that payments go to the agency.
What are some debt relief options to consider?
You can get debt relief with these four methods
- A bankruptcy filing can help you discharge your debts
- Relief from debt through a debt management
- Debt settlement provides relief
- Relief from debt through do-it-yourself methods
The bankruptcy process can help with debt relief
Debt management or debt settlement plans are of little use if you cannot afford to pay the agreed-on amount. If you want to pursue any debt relief strategy, you should first speak with a bankruptcy lawyer. You may qualify for free initial consultations, and if not, there are other options available to you.
While you rebuild your credit history, it will negatively affect your credit scores for up to ten years. Bad credit history can make it difficult for you to get a job. Also, secure an apartment lease, or determine how much your auto insurance will cost. Bankruptcy may damage your credit. But you can restore it much sooner if you repay the debt. By filing for bankruptcy, you are making your co-signer solely accountable for the debt.
Debt relief through debt management plans
In a debt management plan, you pay off unsecured debt with credit cards in full. Rather than paying interest, but often reduce fees or waive them completely. An agency manages your finances, which is why you make a monthly payment to it. A longstanding agreement exists between credit card companies and debt management companies.
If you don’t complete the plan, your credit card accounts will be closed, and you will have to live without it until you finish. The debt management plan itself does not affect your credit score. However, closing accounts can. Upon finishing the program, you may reapply for credit.
Getting debt relief through settlement
Most people do not benefit from debt settlement. When debt overwhelms you and you cannot qualify for bankruptcy, debt settlement is usually the best option.
Usually, debt settlement companies require you to stop paying your creditors and instead put the funds in an account under their control. As you fall farther and farther behind on your payments, you approach each creditor. Creditors may accept a lump-sum offer and not pursue the rest if they fear they will get nothing at all.
You may receive collections calls, incur penalty fees, and face legal action for failing to pay your bills. While you’re negotiating, the debt settlement effect won’t have any effect. A minimum of four to six months must elapse before they make settlement offers. You may have to wait a long time if you owe an enormous amount of money. Meanwhile, you will damage your credit score if you continue to make late payments.
Relief from debt through do-it-yourself methods
As noted above, you can create your own debt relief plan using some of the above-listed options. It is in your best interest to communicate with your creditors and explain why you have fallen behind and give concessions to catch up. Just as credit counselors do in debt management plans. You can usually negotiate a lower interest rate and a fee waiver with most credit card companies through hardship programs. By contacting creditors yourself, you can educate yourself about debt settlement and negotiate an agreement.
If your debts are not unmanageable, you may apply more traditional debt-reduction strategies. It’s possible to apply for a credit card that offers a 0% balance transfer offer if your credit score is still good. If you have a lower interest rate on the debt consolidation loan, this could be a good option.
The options won’t affect your credit rating as long as you make payments, your credit score should improve. It’s important, however, to have a plan that prevents you from running up credit card debt again if you decide to go this route. Also, if you are deeply in debt, you may have difficulty applying for a new credit card or loan. Since you often miss payments or have high balances, which are detrimental to your credit history.
What not to do to relieve your debt
A health crisis, unemployment, or natural disaster can strike quickly and leave overextended debt in its wake. Your creditors or collection agencies may have come to you slowly over a period so you can no longer pay them.
These are some things you shouldn’t do if you’re overwhelmed by debt:
- Normally, you should not defer paying a secured debt like a vehicle in order to pay an unsecured one. You may lose the collateral used to secure that debt.
- Home equity should never borrow money. By defaulting on your mortgage, you’re putting your house at risk. Hence, potentially turning unsecured debt that they can discharge through bankruptcy into a secured debt that cannot be.
- Refrain from using your retirement savings to repay unsecured debt. You are committing financial suicide here.
- Likewise, think twice before borrowing money from workplace retirement accounts. A loan that is inadvertently drawn on is a potential tax bill if you lose your job.
- Make sure which does not sway you collectors are pressuring you most; that could lead to doing things in your best interest. Do your research first so that you can select the best option for you.
Consider your options for debt relief if you desire to free yourself from this financial burden. In this way, you can shorten your repayment period or reduce your debt amount to achieve financial stability faster. However, debt-relief programs are not suitable for everyone, and it is important to understand what might happen if you choose to take part in one.
A debt relief solution might include wiping out all the debt through bankruptcy. Hence, reducing your interest rate or payment schedule to make payments more manageable. Also, convincing creditors to accept less than the full amount you owe them.