For every individual, having a healthy financial situation is always relaxing. Accumulated credit card bills or other debts can be quite stressful. If you are under debt for quite some time, and still, the situation doesn’t seem to get any better in the near future. Maybe it’s time to seek some professional help. Debt relief programs can be a very good option. These programs aim at helping people to clear their debts and improve their financial situation.
What is debt relief?
Debt relief is when a debtor persuades his/her creditor to forgive the debt either partially or completely. The borrower aims to bring the debt amount to a level that the debtor can easily repay.
Under debt relief
A borrower can either ask the lender to increase the repayment period by 1 or 2 years
A borrower can ask the lender to reduce the percentage of the interest levied and the monthly payments.
A borrower can request the creditor to lessen the debt amount.
Irrespective of the method used, a good relief program is the one that not only helps the borrower to get rid of the debt but also helps the lender in getting back the complete or the partial amount of the original debt. Hence, making it worth a shot.
Once you get rid of your debt, you can start working towards improving your FICO report, as well as the credit score. And, as we all know, a good credit score is essential for the approval of a new credit card or a loan. Also, a good credit score helps in getting a loan at lower interest rates. Besides this, nowadays, many employers conduct a job credit check as an essential part of the background check for applicants before hiring them for a job.
If you are planning to apply for a debt relief program, consider all the options and select one that suits your financial needs. There are 5 major options as far as debt relief programs are concerned.
2.Legal debt relief programs:
Before you go for a debt relief program, remember, it seems very attractive and an ultimate solution to your debt problems, but it is not that easy. Hence, if you can repay your debts by controlling your expenditures, then just go for it.
Also, if you are sure about going for a debt relief program, then you first have to prepare yourself mentally that you will be disciplined and dedicated to the program.
Types of Debt-relief programs
Under this plan, the debtor can repay the unsecured debts, especially credit cards, by either getting the fee waived or by getting a rebate in the interest rate. Generally, the credit card companies and the debt management companies work together to help the clients under debt. In this, instead of making individual payments to various credit card companies, the debtor makes an individual monthly payment to a credit counseling company, which then dispense the money among various creditors.
Once the program starts, all your credit card accounts will be closed, and you will not be able to use any credit card until the end of the program. Though a debt management plan might not harm your credit score, the closing of the credit card accounts can harm your credit score.
You have to be regular with your monthly payments. Any misses on your behalf, and you might end up losing the program.
While selecting a debt management program to select an agency that is recognized and has a good reputation, also, be clear about the fee structure and about all the possible alternatives for clearing your debt.
Debt settlement is one of the most complex debt relief programs. It should be your last option. Yes, you read it right. If you have overwhelming debts and you are not eligible for filing bankruptcy, then only go for a debt settlement.
Under this program, instead of making payment to the creditors, the debtor makes payment to an account that is managed by the debt settlement company selected by you. When the company feels that enough amount is accumulated in your account, the company approaches the creditor and offer them to clear 50-70 percent of the original debt.
Waiting for a sufficient amount to be accumulated in the account result in more fees, interest, collection call, or even legal notice. Depending on the amount due, the settlement procedure could take years.
Further, late payments have a negative impact on your credit score. This impact stays for 7 years.
You can hire a professional for settling debt or even do it yourself.
Also read 8 Best Ways To Pay Off Your Tax Debts
c. Debt consolidation
Under this plan, the debtor can consolidate all the debt under one umbrella and apply a fresh loan to clear off all the debts. Just like any other loan, the borrower needs to pay back the loan in the form of monthly instalments. Another way of debt consolidation is by transferring the existed debts to another credit card that too, at 0% interest.
It helps the borrower by reducing the number of lenders hence simplifying the payment method. Under this plan, the borrower has to make changes in the existing financial behaviors. Also, the borrower needs to be regular with the monthly instalment, and to do so, the debtor has to keep aside the money for making those payments.
Bankruptcy, the word is not at all right to be mentioned in an individual’s credit report. To make things worse, the impact created by bankruptcy stays for at least 7-10 years. Bad credit history would not only affect the individual’s loan eligibility but also might affect your job eligibility.
Chapter 7, liquidation, is the most common type of Bankruptcy. If the applicant fulfils the eligibility criterion, it takes just 3-4 months to complete the process. This form of bankruptcy can help the borrower to clear medical debts, credit card debts, and unsecured personal loans. Once over, you can start working on your new financial strategies.
In case you don’t find any other debt, relief solution which can give results within 5 years, then filing for bankruptcy would be the best option.
Remember, bankruptcy won’t free you from student loan debt, taxes owed, and child support obligations.
Budgeting is more like a Do It Yourself Debt relief program. In this, the borrower has to prepare a budget and stick to it. Aim of budgeting is to reduce expenditures, increase income (if possible) and pay the money saved to clear the debt. Also, you may even contact your credit card company and try to persuade them to lower your debt amount or the interest amount.
Budgeting may help you in identifying the root cause of your debt issues. Once found, you may work towards planning strategies to improve your income to expenditure ratio.
Also read Guide to Take Personal Medical Loans
3.How debt relief programs save money?
Debt relief program aims to help the debtor to cleat their debts by negotiating with creditors to lower the debt amount, reduce the interest charged and lower or waive off the fees. Besides this, a good debt relief program also helps the debtor to analyse their financial situation and identify the main cause behind their piling bills. These programs also help the applicant to identify areas where they can save money. The applicant can use this extra money to pay back their debt.
When it comes to the debt relief program, be careful while selecting the solution for resolving your debt issues. If you are planning to hire a professional, be sure to do thorough research. After all, you don’t want to end up paying heavy fees for getting your debt settled. Checking the credibility of the Debt relief program company is also very important.