Debt Relief Strategies: What You Need to Know
Debt is a growing problem in America, and it’s no surprise that so many people have been looking for help. There are many ways for someone to bring down their debt, but debt relief is the best option for many people.
Different Types of Debt Relief
There are a number of different debt relief options for consumers to consider. Each debt relief option works best for consumers in different situations. Moreover, individual companies may not provide assistance with every debt relief option. That’s why it’s so important to check out the different debt relief reviews to make sure you understand exactly what services each company provides.
It is also important to note that different debt relief programs and options may be combined, and sometimes will work in conjunction with each other. Understanding what the different options are will help consumers get a better idea of what services are most relevant to their individual situation.
What is Debt Relief?
Debt relief offers people a way to get out of debt. There are many different options for debt relief and debt settlement, and they can be customized to fit the circumstances a particular person finds themselves in.
The Benefits of Debt Relief
Debt relief offers a number of benefits for people who are struggling with their debt now. Individuals will experience different results based on their particular circumstances, and everyone may not enjoy every benefit. Regardless of your situation, there is a good chance that debt relief options can offer you some of the following benefits.
Lower Total Debt
Debt relief is a great option to lower your total debt. Many companies and creditors will be willing to work with debt relief agents to reduce the amount that you owe. That means you’ll get to keep more of your hard earned money while at the same time being fair to your creditors. Oftentimes debt relief can be a win-win scenario!
Reduce Monthly Payments
Another benefit of debt relief options is that they can reduce your monthly payments. This will allow you to pay your bills on time while still putting money toward lowering your balance. Lower monthly payments can help you get back on budget and get out of the vicious cycle where you find yourself borrowing money to pay your bills.
Settle for Less than You Owe
One of the things that people who have used debt relief enjoy most about the results is that many creditors are willing to settle for less than you currently owe. This means that your overall debt will go down, and your monthly payments could also be reduced. Consumers have saved thousands of dollars by using debt relief options to lower their balances and get companies to agree to settle for less!
Stop Collections Calls
Many people with outstanding debts fear the sound of the phone ringing or a knock at the door because they are constantly being hounded by collection agents. Debt relief provides many options for consumers to make the calls stop, allowing you to have the peace and quiet you need to work out your financial situation. Collection efforts can also run afoul of the law, and many debt relief options will help you learn what collection agencies can and can’t do when it comes to getting payments. You may be entitled to legal action against collectors, and debt relief can help you determine the best path to proceed.
Increased FICO Score
Another popular result of debt relief can be the opportunity for consumers to begin to raise their credit scores. If mounting debt and late payments are bringing your credit score down, then debt relief can provide an answer by helping you get current on your debt while lowering the amount of credit you’re utilizing. This can give your FICO score a much needed boost and help you get back on the track to good credit.
Debt Management Plans
Debt management plans are the most popular option recommended by many debt relief experts. They work to get rid of debt by reducing the interest rates and fees that consumers are paying for their credit and financing products. Consumers will then pay back the full amount they owe over time. There are a few benefits to debt management plans, including:
- Simplification – consolidation options let you make one monthly payment to cover all of your debts
- FICO Boost—making on time payments in the amount agreed will help increase your credit score
- Budgeting advice helps everyone – debt management plans can help you learn how to budget your money, and that means that you’ll have a better overall picture of your finances
It’s important to realize that debt management plans aren’t a fast solution, they’ll take 3-5 years to get you out of debt, and there is almost always an enrollment and maintenance fee. Finally, you have to stay in the program to continue to receive the favorable rates and terms in your settlement
Debt consolidation is another popular debt relief option. It consists of taking out a loan to cover and pay off your current loans. Consolidation loans should reduce the interest rate you’re paying overall, while simplifying the repayment process by putting everything into one payment. Some of the benefits of debt consolidation include:
- Many different options – banks, credit unions, and private non-bank lenders all offer debt consolidation products. Consumers can also use a balance transfer credit card for credit card debt.
- Experience – debt consolidation experts know how the credit and financing industries work, so they’ll be able to help you find the best deal on your consolidation loans
- Makes paying simple – because all of your debts are put into one easy to understand payment, you’ll always know how much you need to have on hand to cover your bill
Not everyone is eligible for debt consolidation, and your credit score can be a big factor in qualifying. Moreover, some consolidation products have hidden fees that you should watch out for, and you should always be cautious if someone asks for your home or car title as collateral for the loan.
If you own your home, then a cash-out refinance might be the best option for you. A Cash-Out Refinance is when you refinance your mortgage and get additional money beyond the mortgage’s current balance. This can provide you with money to pay off your debts, and consolidate them into your mortgage payment. There are a number of benefits of the Cash-Out Refinance option, including:
- Pay off higher interest debts with lower interest mortgage debt
- Lower your total monthly payments to help you stay on budget
- Interest payments for mortgages tend to be tax deductible
Cash-Out Refinance isn’t the right option for everyone. One reason is that you need to own a home to have access to this option. It also adds to your mortgage debt, so you’ll still be paying back the money you borrowed, and it increases the risk that your house is foreclosed on if you can’t pay the bill.
Bankruptcy is the big red button of debt relief options. It should be used only as a last resort, when all other options have been exhausted. That being said, there are a number of situations where bankruptcy declarations can be beneficial to consumers, and might be the best option depending on someone’s particular situation. There are two different ways to file bankruptcy, Chapter 7 and Chapter 13. Chapter 7 bankruptcy cancels your debts, and chapter 13 establishes a 3-5 year payment plan. There are several benefits to seeking bankruptcy protection, including:
- Legal protection – bankruptcy is a legal process that shields you from collection efforts. That means creditors are forbidden by law from trying to collect on any debts discharged in bankruptcy or currently in bankruptcy proceedings
- Fast resolution – the bankruptcy process only takes 3-6 months, which is fast when it comes to debt relief options.
- Clean slate – once you’re done with bankruptcy, your debt is wiped out and you can start over again from scratch
There are some significant drawbacks when it comes to pursuing bankruptcy. The first is that your credit score will drop significantly, Bankruptcy can stay on your credit report for 7-10 years, and creditors and lenders will see this as evidence that you are a high risk gamble for financing. Additionally, bankruptcy isn’t free, you’ll need a good lawyer, court fees, paralegal fees, printing charges, and more. Finally, bankruptcy can’t get rid of certain kinds of debt. Student loans, back taxes, and child support can’t be discharged in bankruptcy, and you’ll be responsible for these debts when you are done with the bankruptcy process.
Keep in Mind
Each option for debt relief has its own advantages and disadvantages. A certified debt relief specialist or debt relief organization can give you an idea about what options work best for your particular situation. It’s important to understand that debt relief can be a long and sometimes complex process, but it is almost always better than staying locked in the cycle of debt.
The Problems of Debt
Debt is a touchy subject. Most Americans agree that people shouldn’t use debt, and think that people who use debt are doing it to live beyond their means. However, at the same time, most Americans also carry this very same debt. This stigma can prevent people from exploring options to help reduce their debt. This locks them in a cycle where they take on more and more debt in an effort to get out from under it. This vicious cycle can lead to a number of problems for people.
The first consequence of the vicious cycle of debt is that debt will continue to mount. Consumers will move a balance from creditor to creditor, each time increasing the total amount that they owe. Additionally, new credit options will usually have higher and higher interest rates, which means the debt consumers are adding will cost even more. This situation can easily create a cycle that is difficult, if not impossible to break out of without some kind of debt relief.
Additionally, more and more of consumers payments start to go toward interest. That means that even if someone is paying their bills on time they might not even be lowering the balance on what they owe. This can result in a treadmill effect where you’re constantly making payments, but balances never seem to get any lower.
Finally, as consumers become more and more desperate, they’ll start using credit and financial products that have incredibly high interest rates. These make it nearly impossible to get out of debt, and sometimes the interest can build faster than payments can be made, locking consumers into an impossible cycle.
In addition to the material implications of debt, there are a number of adverse effects that debt can have on someone’s mental health. The stigma associated with being heavily involved in debt can increase stress and anxiety, making it harder to find a solution or a way out of debt. This greater stress can also play havoc with personal and professional relationships. As a result, debt can ruin families, friendships, and professional relationships.
Stress can have other negative effects as well. It makes tempers shorter and increases the chance of conflict and mistakes. This mindset can make even the simplest task overwhelming and make someone constantly fear for their job. The fear and stress generated can increase the instances of mistakes and actually wind up resulting in the loss of a job.
If you’re struggling with debt and can’t make payments, are being harassed by collection agencies, and tired of living with the stress and pressure, consider some of these debt relief options. Check out some reviews of companies, and see if debt relief options can help. After all, it’s your life, you should be living it for yourself, not your creditors.