Debt relief: find your options and understand the consequences

Are you looking for ways to regain control of your financial life? Well, debt relief can help you do that. It is a broad term which could benefit you by either modifying the terms or reducing the amount you owe to creditors. This enables you to be debt-free sooner than you can think of.

While debt relief programs seem the best option for you, however, you also need to understand about the possible consequences they might result.

Here are some benefits of debt relief programs:

  • Debt relief can put an end to your debts through bankruptcy.
  • It can assist you to get rid of debt quickly by modifying payment schedule or interest rates. This, in turn, lowers the payments.
  • Debt relief programs may also serve as a negotiator to creditors and thus make them agree on accepting lower amount than you actually owe to them.

Ways to Get Debt Relief

There are varieties of debt relief options for which you can benefit from:

  • Monthly balance payment
  • Debt settlement
  • Debt consolidation
  • Debt management
  • Bankruptcy

Is Debt Relief A Good Thing?

If you’re on debt burden, people would ask you to settle your balances or promise you that they will cut your monthly payments in half. Well, be on alert for these companies. They are usually scams or fraud, and could only enhance your debts rather than reducing them.

Luckily, there are many debt relief programs that actually prove to reduce or even eliminate the debt in a legit and logical manner; in short, they reboot your financial life.

In order to refrain from scam, you must verify these facts beforehand you choose to sign any agreement:

  • How much balance you should have to qualify
  • How much you will be paying
  • Tax implications
  • Know which Creditors are being involved, and how much they are being paid. In a situation when your debt goes to collections, you should know who is collecting your debt so that you can submit payments to the right agency.

Paying the Monthly Balance

You might wonder, why paying the monthly balance is less complicated and easier way to be debt-free? This is because it reflects discipline and your ability of paying off debt on monthly basis. While, it only takes you to pay the minimum at least, however, it might take longer time if you have more debt on you. So, if you can afford to pay more than required amount, it can help you get succeed.

Good thing about this debt relief option is that it doesn’t burden those who are in debt with late payment charges and high interest rates. Also, if have a good record of making payments on time, it will affect positively on your credit score.

You can decide between paying more than minimum and paying just the minimum, based on your balance. Talk to a professional and find out if you can pay more than the required. Finally, if it’s more than that, it is time to consider paying off debt at highest interest rate along with larger amount than the minimum requirement.

In a scenario, where your balance couldn’t cover that much, it’s better to realize your expenditures and find out ways to save more. Still, if it can’t benefit you then opt for another option.

Debt Settlement

Generally, people with poor credit score opt for debt settlement. It is a settlement where creditor agrees on a reduced balance rather than actual. However, in return, lender agrees for a cumulative settlement amount from the consumer.

It seems consumer will pay less using this debt relief option. However, it’s not the case. Rather than 50%, they usually end up paying 60-80% of the original debt.

Further, you need to be good at it. Negotiation is a tricky art. You may take assistance from debt settlement companies who have experts to negotiate a settlement. Here, the success lies in hiring the best agent. Anyone can do it but the experience and negotiating skills of debt relief agent emerge to accomplish more than what you can. So, decide on choosing a company that has been serving for longer time. Since, such companies tend to have more connections with collection agencies and creditors; it is more likely to get a desirable debt settlement.

However, debt settlement has its drawbacks as well. Many credit companies don’t agree to debt settlement offers. So, if you’re considering debt settlement as a solution to your issues, you should give it a second thought before opting for it.

Also, debt settlement companies take an estimate to reduce your debt. As per mathematical analysis, their overall settlement package exceeds 80-90% of what was initially owed.

Moreover, it may also affect your credit score badly. A lender or creditor can report the debt as “settled for less than agreed’’. So, it will stay on report for seven years at least. Meanwhile, they can also report your late payments to credit bureaus, hence cause drop in your credit score.

Debt Consolidation Loans

This is basically a merger of all debts in a single loan. This means that you are obliged for a single monthly payment rather than multiple payments.

This debt relief option works on removing high interest debts and allows better management of debts. Mostly people opt for a home equity loan through it.

Calculate the total and make sure you choose this method only if monthly payments are less than total. Also you must consider your credit score since it could have negative effect on your credit report. Make sure you stick to your budget plan, and down payments of the new loan considering your home is now at stake.

Debt Management

Also known as credit counseling, it is a program where you can enroll to educate yourself about debts and how to successfully manage them. It works similar to debt settlement to some extent, except funds are managed by debt Management Company.

It is designed to consolidate your debt and regain control of your finances. They negotiate with creditors for lowering the interest rate, monthly payments and outstanding balance. This might affect your credit score as well.

The feature that makes debt management unique from debt settlement is that they offer counseling services which helps you stay organized and punctual with your payments.

Bankruptcy

Let’s say you don’t agree on paying as per the debt settlement or debt management plan, what should you do then? Well, before you opt for any debt relief strategy, it’s recommended to talk to a bankruptcy attorney first. Often, initial consultations tend to be free. And, if things don’t work for you, you can move onto other options.

Meanwhile, if you qualify for liquidation (common form of bankruptcy) it can remove most of credit card debt, medical debt and unsecured personal loans, and that too in just three or four months.

Here’s how:

  • Bankruptcy won’t wipe out child support obligations or taxes owed. Also, student loan debt won’t be forgiven.
  • Surely, they will affect your credit scores which stay there for up to 10 years. This may influence your eligibility for particular jobs, or when you go for an apartment lease, or for car insurance.
  • In a case when your credit isn’t that good, a bankruptcy may help you remodel your credit much quicker than you can imagine.
  • In case you used a co-signer, your bankruptcy filing will show that it’s the cosigner who is entirely responsible for debt.
  • If you continue to accumulate debts, you won’t be able to qualify for Chapter 7 bankruptcy for eight years. Certain laws vary by state. While some specific vehicles are exempt from bankruptcy such as motor vehicles but some are not, including car or truck, family heirlooms, vacation homes and any valuable collections.
  • Just because you don’t have any income, a creditor can’t reach to you. It may not necessary. They can still sue you and can get a judgment against you but they won’t be able of collect amount of debt that you owe.
  • It’s not only confined for people with overwhelming debts. People with income above the median might need to file for Chapter 13 bankruptcy. Chapter 13 is a court approved repayment process. It mainly relies on your debts and income.

Summary

If you’re hounded by creditors and looking for a debt relief program, it’s better to do a DIY version first. Do so by calling each of the lenders, talk about your situation and ask their suggestions and options. Some creditors may help you by lowering your interest rates and allow you to pay off debts easily by granting a grace period. This way you will end up saving more money, credit and stability.