Debt relief aims to provide debtors a fair and structured way out of their substantial debt. These programs are designed to reorganize debts in a way to bring relief to the debtor. They are usually done by professionals that assist individuals in making plans for affordable payments and maybe even negotiating a lower sum to be paid to creditors.
The goal behind debt relief is to assist people going through a tough time by providing a solution or system they can track and follow. Many attest that such programs have provided a sense of security and have helped them overcome the problematic and anxious period in which they owed money. Looking into a reputable company that can provide a tried and tested debt relief program is the first step toward overcoming considerable debts and gaining control of your financial situation.
Types of Debt Relief
There are numerous forms of debt relief, and while they all have the common goal of alleviating the pressures of debt, they have different approaches and take some time. Getting rid of debt is a relatively lengthy process, and people following the programs must be patient. Starting a plan and then dropping out or not following the agreed terms can negatively affect credit scores. Here are the different types of debt relief
Debt management is a service provided by agencies which aims to change the terms of an agreement between the creditor and the debtor. These services usually involve a debt management plan (DMP), which is used in structuring payment plans that work for both parties. A DMP must be agreed upon by both the creditor and the debtor. It is best to have a written statement from the creditor that confirms the terms.
A DMP can lower the amount of interest owed, reduce the amount of money owed every month, extend the terms of the loan, and maybe even reduce the principal amount owed. Once a person is following a DMP, it usually takes an average of four to five years to be debt-free, depending on the structure of the plan and how well the client follows it.
Consolidation is a method of refinancing that involves gathering all unsecured debts, such as credit card bills, personal loans, medical bills, and consolidating them into a single monthly payment. Debt consolidation can involve taking out a single loan from a financial institution that covers your existing loans, transferring balances to zero or low-interest cards, and others. The benefit of debt consolidation is that it simplifies the payment process and can offer lower interest on the amount owed.
Since debt consolidation does pay off the debt on current credit cards, there is a concern that clients may go back to using those cards and, in turn, create more debt. If you are currently in such a plan, it is essential to consult with your agency and make sure you do not spend beyond your means.
Debt settlement is also known as debt arbitration, debt negotiation, or credit settlement. Whatever term you choose to call it, the idea behind it is the same. The process involves covering your unsecured debts for less than the amount you owe. Depending on the creditor, debt can be reduced by more than half! Settling an account for less sounds amazing, but despite the appeal, it does have some risk associated with it.
Firstly the lenders have no obligations to accept the terms of the settlement, so it is not a foolproof strategy. The reason that some creditors might accept a settlement mostly comes down to the financial situation of the debtor. If someone is experiencing financial hardships and has no way of covering the full amount, a settlement might be reached as opposed to letting the account default. These settlements can be paid in a lump sum or a series of payments. Apart from the risk of the settlement not being accepted, debt settlement damages an individual’s credit report for seven years.
Bankruptcy is a huge step that requires careful consideration before committing to it. It is the last resort when every other system does not work out, and you have no way of covering even minimal payments in the near or distant future. For this reason, it is a viable solution for those in severe debt. A good starting point for those considering this option is meeting with a bankruptcy attorney. They will be able to help you understand and navigate the process.
Bankruptcy is a great way to rid the burden of substantial debt in the short term, but it is crucial to keep in mind that there can be a long term adverse effects on credit opportunities. It also stays on your credit report for a decade.
There are numerous programs available to help people in these difficult financial situations, but they do not work for everyone. A program’s success depends on the available resources, ambitions, and diligence of clients, as well as the professionalism of the agency. No program is a quick fix or guarantee of financial freedom, so do your research and make sure you are ready to commit to the responsibility and requirement that a debt-relief program entails.