Being deeply in debt is a highly stressful situation that can cause anxiety, depression and other health effects. However, it is possible to relieve debt.
Debt relief is a process that helps you to pay off your debt, such as credit card debt, unpaid medical bills or mounting unsecured loans. Sometimes a program done through a debt relief center will help you lower your interest rate or the full amount of unpaid debts through negotiation allowing you to pay off your debts faster, however some options still require you to pay the full amount.
How Debt Relief Services Work
There are several different ways to achieve relief from debt. Some programs are through self initiative while others are through debt relief services. However, not every individual may qualify for each option.
Some debt relief services offer programs that can reduce your interest rate or total amount owed through negotiations. In many cases, this can help you to save money in the long-run. Other debt relief programs can extend your loan period to reduce your monthly payments.
Debt Relief Options
- Credit Counseling: These debt relief services can be found online or even locally. Some of these are nonprofits and charge nothing for their services. When you contact these agencies, a counselor will spend around an hour with you discussing your finances. Depending on your personal situation, the counselor might suggest a debt management plan. Your debt relief services counselor may negotiate with creditors on your behalf. This negotiation can be for a longer term to get you a lower monthly amount, a reduction in your interest rate. Once an agreement is reached, you would send your payment to the counseling agency which in turn distributes the money to your creditors. These programs typically take 5 years to complete.
- Debt Consolidation: This option helps you to relieve debt by combining your debts into one loan. The main goal of this option is to eliminate the higher interest rate debts and give a lower monthly payment. However, this option will not lower your total balance of debt owed. These loans are secured loans, meaning you offer collateral, such as in a home equity loan. If you don’t own a home or have much equity, you can get an unsecured loan, however these loans generally have a long term in order to offer lower payments.
- Debt Settlement: For this option, a debt relief center can negotiate with your creditors on your behalf. Often, they help you settle with your creditors for a lower amount to which you make lump sum payments and in return, the creditor agrees to forgive the rest of the debts. Note that such a program through a debt relief center could have a temporary negative effect on your credit score, but is considered a better option than filing for bankruptcy.
Debt Relief: Pros and Cons
Know that a debt relief center will try to individualize your plan as much as possible as each person’s financial situation is unique. However, all these different debt relief programs have both positive and negative aspects.
Pros of Debt Relief
In many cases, relief from debt through programs offered by a debt relief center can help you achieve financial freedom more quickly. In some cases, it can even lower the amount of total debt you owe. This can ease or relieve your financial burden, allowing you more money to save or spend as you wish.
Cons of Debt Relief
However some debt relief programs do come at a price. Options such as debt settlement and bankruptcy can both leave a stain on your credit score. In other cases, it might take you longer to repay your debts. This can happen when you choose an option that extends your loan period in order to lower your monthly payment. While this may help you eventually pay off your debts, this method does require diligence. It is also advisable to to acquire new debt while on certain programs and it is also advisable to not obtain new credit while completing a program to relieve debt.
Why You Should Trust Us
Not all American debt relief companies are the same. It is important to do your research and choose the company that fits your needs best. It is also important to choose a reputable company. Make sure to ask yourself two questions: First, what will this debt relief center for you and second, is it for real. Anything related to money, such as credit card debt, attracts scammers and you should be weary of that. A company should only charge a fee after it has produced results, such as having settled some of your debts.
American debt relief can be found in two alternative options, however, one method requires initiative and diligence while the other can leave a stain on your credit score.
- Self-Payment Initiative: It is possible to resolve your debt on your own, however success is not guaranteed. It is possible to continue to make your monthly minimum payment, however you will find that by doing this, you may never get completely out of debt. However, it is better to make a minimum payment than no payment at all to relieve debt. You can contact creditors to explain your situation but note that you will need to have documents available to prove that you are suffering financial hardship.
a. You can also try prioritizing your debts through snowballing, a method invented by financial expert, Dave Ramsey. This method is most helpful when dealing with credit card debt. This self-payment initiative requires you to rank your debt from your lowest balance to your highest balance. Begin by concentrating your efforts on paying off the lowest balance debt while continuing minimum payments on your other debts. This will allow you to have momentum as you continue to pay off debt.
b. Another option for self-payment initiative is through debt stacking. With this option, you order your debts from highest interest rate to the lowest interest rate. Begin by concentrating on paying off the deb with the highest interest rate. This method to relieve debt takes a lot of discipline, however, as it can take a long time to pay of a high balance.
- Bankruptcy: Filing for bankruptcy is considered by some to be a last resort to relieve debt, though it can be inevitable for those with no income or no realistic way to pay off your debts within a few years. This option does tarnish your credit score, staying in your credit report for up to 10 years. In order to file for either chapter 7 or chapter 13 bankruptcy, you will need proof that you are simply unable to repay your debts. You will also be required to seek credit counseling from an agency that has been approved by the U.S. Trustee’s office.
When you consider all of the angles, debt settlement is a great option for many Americans looking to lower their debt and ease financial stress.
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