Complete Guide to Debt Relief

ByTop10.com StaffOct.21, 2018

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Understand Debt Relief
For most households in the United States today, debt has become a fact of life. With staggering amounts of debt for most Americans, finding a way out of a debt hole may seem increasingly difficult. However, most consumers can find debt relief through a variety of financial tools that have gained in popularity in recent years

Nevertheless, finding the best debt relief options is not always a one-size-fits-all proposition, and households should always consider their own unique circumstances when determining the right tool to lower outstanding debt.

Today, many customers can have problems simply paying down a debt. From rising expenses to monthly bills to unexpected life events, there are a myriad of ways individuals and families can fall behind on their monthly payments. In such situations, families can feel trapped in a spiral of debt that has no end. Even so, customers can find relief in a series of services and strategies.

These range from the simple – pay a larger monthly chunk of debt – to more complex ones – declaring bankruptcy – thanks to a variety of companies and services that specialize in helping customers improve their financial situations. However, with so many options available, it can be difficult to find the right fit. Below is a guide to debt relief alternatives and how these options can help you climb out of debt and into a brighter tomorrow:

Consumer Credit Counseling

This is considered the most “hands-off” solution to debt relief. With credit counseling, customers sit with a trained financial professional who will: 

  • Review personal finances
  • Offer alternatives
  • Help you craft repayment and home budget plans. 

Credit counselors do not actively take part in the repayment process, but they can be an excellent source of empowerment if you’re looking to take matters into your own hands. Another major benefit of credit counseling is that in many cases, the initial consultation is totally free and handled by certified professionals.

While this option may sound great at the outset, one of the biggest downsides is that credit counselors do not handle the actual task of repayment. Moreover, they also may reveal facts about a borrower’s personal finances that they may not be willing to hear. Finally, these programs require motivation on the part of an indebted consumer, as counselors do not work to pay off debts on customers’ behalf.

Debt Consolidation

Consolidation has become one of the most popular options available for debt relief today. The strategy is designed as a straightforward solution to help you retake control of your finances if you have moderate levels of debt, while lowering your monthly repayments. Debt consolidation works by taking out a new large debt to cover the total amount of outstanding loans. Instead of multiple loan payments every month, the outstanding debts are ideally consolidated into a single loan with just one monthly payment at a significantly lower interest rate.

For many kinds of debt, consolidation is a realistic way to lower payments every month and establish a more feasible timeframe for paying off outstanding borrowings. The main goal with consolidation is to give customers a more organized payment schedule and ensure that you are more likely to succeed in eliminating all of your existing debt. 

Because this service is meant to ease the payment schedule, consolidation is ideal for you if you have not defaulted on loans, but are becoming overwhelmed with the prospect of making several loan repayments every month. Consolidation works best when dealing with similar types of debt, meaning that customers that have racked up substantial credit card debt with different accounts could roll your outstanding payments into a single monthly amount.

Debt Management Programs

Debt management programs are an excellent way for you to take control of your own finances again. With these programs, you’ll sit with financial professionals and analyze your current finances as well as existing debt. From there, you’ll work together to create a structured budget and debt repayment plan that will help maintain financial stability while meeting your obligations. 

One of the biggest advantages of debt management is that in many cases, you can negotiate lower fees and interest rates on your existing debt as long as you guarantee you’ll finish the repayment plan. Moreover, because you agree to pay back the outstanding amount in full, you can finish the repayment program with strong credit and stabilized finances.

Debt management is one of the least harmful solutions for debt relief, but it can take longer than other available strategies as it focuses predominantly on creating better habits while lowering monthly payments. Moreover, customers must see the programs through to the end or risk losing the concessions made by creditors. Overall, debt management is an excellent solution if you prefer to be proactive about your existing debt and are looking to learn financial good habits.

Debt Settlement

If you have debts you are unlikely to pay, debt settlement may be an ideal option to enable you to remain solvent without having to resort to bankruptcy. With debt settlement, a borrower, or someone working on your behalf, will negotiate directly with the creditors and find an amount that can be realistically paid off. Creditors that accept these proposals then forgive the remainder of the debt. This is a good option if you are rapidly being overwhelmed with debt payments, or if your financial situation has deteriorated quickly due to unforeseen circumstances.

Debt settlement should always be considered one of the last alternatives available, as it can have long-lasting effects on future finances. 

One of the biggest risks with settlement is that creditors are not obligated to agree to any terms, so it is not a surefire solution. Moreover, debt settlements leave a negative mark on credit scores, meaning a harmful item will be visible for up to seven years on most credit reports. As such, settlement is an ideal solution if you are quickly running out of debt relief options but would nonetheless prefer to avoid bankruptcy.

Bankruptcy

Considered the “nuclear option,” bankruptcy is a debt relief solution for those customers who are facing the most extreme scenarios. Bankruptcy is the process of legally declaring that you cannot pay your existing obligations and requesting that outstanding debt be forgiven or a new payment plan be established (based on the type of bankruptcy requested). 

This step is only advisable for if you are unable to pay your debts in the short-term, and are certain that you will not be able to do so in the next three to five years. In some cases, a bankruptcy is the only alternative, but it does come attached with several negative features that make it unattractive in most situations.

For one, bankruptcies – even those discharged and closed – remain on a customer’s credit report for at least 10 years. This will severely impact your ability to access any new credit, from personal loans to home mortgages. Additionally, certain kinds of debt, such as student loans, are not covered by bankruptcy proceedings. As a result, you should research before getting started with this solution. 

Finally, bankruptcies can be expensive processes, so if you are not out of other options, you should consider alternatives before moving forward with bankruptcy proceedings.

With such a wide variety of choices to help, getting relief from debt has become a problem of the past. However, before getting started with any program, always review all debt relief companies that will set you up for financial success in the future.