If you do your research, debt relief can give you back your financial freedom and help you pay down or rid yourself of debts. There are several debt relief programs that offer considerable benefits, but not every program is right for every borrower.
Therefore, it is essential that you learn more about the options that may be available to you to make an informed decision. The debt relief program that may be best for you will depend on several factors, including the amount of debt that you owe and whether or not you could reasonably repay your debts.
Each program will also impact your credit score and history in different ways. However, finding relief from old debts can also help pave the way to begin rebuilding your credit following a hardship.
When starting any program, it is also crucial that you make plans to prevent yourself from falling into debt again. Without addressing the original problem associated with your accumulated debt, you will be more likely to fall further into debt rather than find relief.
1. Debt Consolidation Options
A debt consolidation loan is a type of loan that can be used to pay down other forms of debt. The process combines various debts from multiple creditors into a straightforward loan.
Debt consolidation companies can assist with consolidation options. However, these companies charge a fee for their services. When using these services, you will typically submit payments to the consolidation company.
The company will then distribute your payment among your creditors. This reduces the number of payments that you must make each month, and you may also be able to pay down debts faster than you otherwise could have yy putting more money each month towards a single payment.
Not only does debt consolidation reduce the number of payments that you must make each month, but it can potentially save you money on interest charges. However, loan interest rates are determined by several factors including your:
- Credit score.
- Debt-to-income ratio.
Consolidate Debt With a Credit Card
Alternatively, you can obtain a balance transfer credit card to achieve debt relief. These credit cards include an introductory period from six to 24 months with a zero- to low-percent interest rate. Some credit card with promotional interest-free rates include the following:
- American Express Cash Magnet Card
- BankAmericard Credit Card
- Citi Simplicity Card
- Discover it Balance Transfer
- Wells Fargo Platinum Card
However, after the opening period, balance transfer credit cards commonly contain very high-interest rates.
A loan or balance transfer credit card may be able to assist you while saving you money on interest payments, so long as the interest rate that you are offered is lower than that of your individual debts. Therfore, if you intend to obtain a balance transfer credit card, then you will likely need to pay off your debts in full before the end of the introductory period to benefit financially.
2. Debt Relief Programs for Debt Settlement
Another popular option for debt relief is debt settlement. Debt settlement allows you to settle debts with your creditors for often less than the amount that you owe.
This can help you save money on your debts. However, debt settlement should only be considered when you are overwhelmed by debt and have no hope of paying off debts but do not qualify for bankruptcy.
To be able to negotiate a payment with creditors, your creditor would need to believe that you are unable or unwilling to repay your debts. Therefore, you will likely need to stop paying your creditors and allow your accounts to fall into default.
Note that these types of debt relief programs will have a significant impact on your credit score. Even after you repay old debts, the fact that your accounts were in default and that you settled on the debts will have lasting impacts on your credit score.
When considering debt settlement, you can go at it alone or you can utilize a debt settlement company. However, the company will charge you for their services, which can increase the overall amount that you can expect to pay on your debts.
Debt Relief Programs and Credit Counseling Services
- Freedom Debt Relief
- National Debt Relief
- National Foundation for Credit Counseling (NFCC)
- Financial Counseling Association of America (FCAA)
3. Finding Debt Relief Through Debt Management Plans
Debt relief can be achieved on your unsecured debts through a debt management plan, but you will need to work through a debt management agency. With a debt management plan, you will submit your payments to the agency that you choose. That agency will then distribute payments to your creditors.
- A debt management plan will generally allow you to repay your debts in full at a reduced interest rate.
- This can help you save money without harming your credit score as much as you would with a debt settlement.
- One downside of debt management for debt relief is that all of your credit card accounts will be closed. In most cases, you will not be able to obtain further cards until your debts have been repaid.
If interested in a debt management plan, it is crucial that you review all of the fees that you may face when working with a debt management agency. This can be a flat rate, or fees may be based upon the number of accounts that you have, or your total amount of debt.
4. Achieving Debt Relief Through Bankruptcy
Other debt relief programs will not be able to assist you if you do not have the means to repay your debts. If you have no hope of getting out of the debts that you have accumulated, then filing for bankruptcy may be your only other option.
This is not a choice that should be made lightly, as bankruptcy:
- Will significantly reduce your credit score.
- Make it more difficult for you to qualify for future loans.
- Will remain on your credit report for at least 10 years.
If you are considering finding debt relief through bankruptcy, then it is crucial that you speak with a bankruptcy attorney. Not only will you be able to find out if you qualify to file for bankruptcy, but you can also receive invaluable assistance navigating the legal system.
Filing for bankruptcy can erase most of your unsecured debt, including credit card debt, personal loans and medical debt. However, it will not eliminate certain debts, such as child support obligations or student loans in most cases.
Additionally, if you have a co-signer on any of these debts, then it will leave your co-signer solely responsible for the unpaid funds.