You’re tossing and turning at night, worried about a debt load that has become unmanageable. You need help, and you know it. First, congratulations for resolving to act. That’s the first step. Now you must choose among options available to you to ease or erase your debt burden. With that said, here are smart debt relief solutions that can help put you back on solid financial ground.
Many consumers need some form of debt relief. After all, the average household carries a debt, including mortgage, of some $132,529 — an 11 percent increase over the past decade. Further, credit card and auto loan debt has surpassed $1 trillion, and people who have student loans owe an average of $37,172 – an increase of a whopping 186 percent in the last 10 years.
Explain Debt Relief
There are several forms of debt relief. Depending on the one you choose, debt relief could mean a reduction in your payment via a lower interest rate or modified payment schedule. It could also mean clearing your debts altogether – through bankruptcy – or getting your creditors to accept less than what you owe to “settle” your debt.
What Are My Options?
Here, we’ll explore five chief debt solutions: credit counseling, debt management plans, debt consolidation, debt settlement, and bankruptcy.
With this financial strategy, an accredited credit counselor will offer counseling that usually includes a review of your situation, financial education, and help establishing a budget. Services are usually free, but some counselors charge a nominal fee.
Debt Management Plan (DMP)
If your financial circumstances are severe, your credit counselor may recommend what’s called a Debt Management Plan. With this approach, your counselor will work with your creditors – typically credit card issuers – to allow you to make a single monthly payment to the counseling agency, which distributes it to your creditors. You also may get a better rate or have fees waived.
Do note, though, that enrollment in a DMP will require you to close existing credit card accounts. You also can’t get new plastic until the program is completed, and you’ll invalidate your plan if you miss a payment.
With this approach, you basically get all your unsecured debts – with their disparate payments and due dates – rolled into a single payment, hopefully with a better interest rate. This streamlines your payments, making them more manageable.
Debt consolidation may be achieved through a personal or home equity loan, or a zero-percent balance transfer card onto which you can shift your high-interest credit card balances. Then, you’ll pay off that card before the rate shoots back up. You’ll need good credit for this card, though.
While it is possible to obtain a consolidation loan with bad credit, you likely won’t be able to get a loan with a rate that’s lower than what you’re now paying. We suggest you get financial help with Achieve to assist you in controlling your debt and saving more money.
Debt settlement entails hiring a company such as Freedom Debt Relief to see whether your creditors are amenable to allowing you to pay less than what you owe, in a one-time payment in full, to settle your obligations. Naturally, creditors don’t want to accept a dime less than what they’re due. However, they know that your next recourse might be bankruptcy, a filing that just may yield them nothing. So, they’re likely to settle.
The process involves a consultation to go over your finances, then establishing a savings account from which settlement payments will be derived. Once you’ve saved enough, your negotiators will use the account as leverage with each of your creditors. You don’t pay anything until each settlement is reached and paid.
This is the strategy of last resort since your credit scores will take a major hit. There are two types of bankruptcy available to you: Chapter 7 and Chapter 13. The former is the most oft-used form and can clear most debt that isn’t moored to collateral. Depending on where you live, you may have to give up some assets. Further, a Chapter 7 filing will remain on your credit report for up to 10 years.
With Chapter 13, the court will establish a repayment plan of up to five years and notice of your filing will live on your credit report for seven years.
Ultimately, the smartest debt relief solution is the one that suits your situation best. Choose wisely.
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