4 Relief Options To Help You Handle Debt Right Now

Are you currently struggling with an overwhelming amount of debt? Payments are piling up, and you have no idea how to manage them? Or, despite your best efforts, you are still not making progress in paying off your loan? If that is your case, a debt relief strategy can be an excellent approach to ease your financial burden.

What Is Debt Relief?

In simple terms, debt relief helps you reduce or eliminate your debt once and for all. There are many different options available based on each individual's situation and specific needs. These solutions can change the amount of debt owed, reduce interest rates and help you get back on your feet more quickly.

Understanding Your Debt

The first step to seeking relief from your debt is to understand what you owe. Here are some of the facts to consider:

  • How many debts do you currently have? Make a detailed documentation of all your debts, including the deadline for payment (if there are any).
  • How much do you owe in each and in total? Write down how much you owetoday on each one, and add all of them to find out exactly what your total debt is.
  • What are the interest rates you are paying? Find out what percentage and type of interest rate each debt has.
  • What is the type of debt you are in? The three main types are Secured, Unsecured, and Installment. Know what type of debt you have.

What Are My Options?

Not all debt relief options follow a “one-fits-all approach”. The best method for your situation will depend on a variety of factors, like the ones discussed in the previous section. Let’s take a close look at a few of the most common debt relief options.

Debt Consolidation

Debt consolidations consist of combining multiple sources of debt into a single one. This is done by applying for a new loan, which is used to pay off current debts. The borrower is then left with only one loan to pay, which usually has a lower interest rate.

  • Lowers the interest rate. If you are currently accumulating credit card loans, the average percentage rate is 16%, while the average rate of a personal loan is 10%.
  • Simplifies your finances. Simplifying your budget allows you to create fewer opportunities to miss out on payments.
  • Improves your credit score in the long term. Your payment history is one of the most important factors to improve your score. This solution allows you to make the necessary payments easier.
  • Can have additional costs. Sometimes debt consolidation loans can come with added fees such as closing costs, origination fees, and others.
  • Does not solve the real financial problem. While it may simplify the terms of payment, it does not eliminate the debt ride away. Many borrowers who take advantage of this resource and don’t cut their spending, end up in the worst financial situation.
  • May not get a better interest rate depending on your credit score. If you currently stand in a position where you do not possess a satisfactory score, it can be challenging finding a deal that offers you a lower rate.

Debt Settlement

A debt settlement is a negotiation of debt where the borrower asks to pay less than what is currently owed. Typically, the debtor will make a single large payment in exchange for the new conditions of the loan. By doing so, the debt matter will be closed. You may choose to negotiate the settlement on your own, or with a company that will act as a mediator between both parties.

  • Avoid the bankruptcy route. Filing for bankruptcy has many negative consequences for the borrower, including damaging your credit score for a long time. When this happens, getting other types of loans you may need can be even more complicated.
  • Pay off debt sooner.
  • Avoid creditor lawsuits in the future. Sometimes lenders may sue borrowers for lack of payment, sometimes even if the borrower does not have any money.
  • Creditors may not be willing to negotiate. There is a possibility that the lender will either not negotiate or only agree to terms that are not favorable to you.
  • Credit score can be impacted negatively. Settle debts are often reported to the credit bureaus, which can affect your credit for seven years.
  • High potential taxes. The money saved in a debt settlement is considered to be taxable income by the IRS.

Debt Counseling

Debt counseling is also another viable option to get out of debt. The credit counselor is an expert in the field. They will be able to assist you in creating a budget, and prioritizing your financial needs and obligations to pay off your debt.

  • Negotiate lower fees. Most of the times credit counselors are able to negotiate lower than borrowers because of their experience in the area.
  • Improve your financial literacy. In addition to providing assistance to get you get out of debt, a counselor can also teach money management skills.
  • Some nonprofit organizations offer this service for free.
  • It will not reduce the total amount of money you owe. This type of relief will only provide you will assist in how to manage your income, but it does not have the ability to reduce your overall debt or interest.
  • May require initiation and month fees.Private counseling assistance may come with additional fees that usually start at $80 dollars.

Debt Management

A debt management plan may be done through a credit counselor or a debt relied program. In this case, debtors make a single payment to a debt management plan, and the administration decides how much money should be distributed among your creditors.

  • Only one monthly payment is necessary. Like a consolidation relief, it simplifies your payments, saving you significant time.
  • Credit score should increase over time. Data shows that clients that adopt these measures to normally increase their credit score by up to 62 points.
  • Can pay your debt faster. If debt management program can negotiate better terms of payment and lower interest rates, you may have the ability to pay your debt even faster.
  • Hard to qualify for a debt management plan. Most debt management programs are limited to certain types of debts you incurred. It is mainly used for unsecured debts such as personal debts or credit card debt.
  • Most debt management plans require you to close your credit card accounts. This is used as a temporary measure to avoid the borrower from accumulating even more debt.
  • May be hard to qualify for a debt management plan. Some creditors will choose not to take part in the debt management plan. This harms you especially if you owe the most amount of money to that creditor.

All In All

Debt relief has the potential to alleviate tremendous financial stress on the debtor. Understanding how debt relief works is essential in choosing what relief resource is the best fit for you.

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