Debt Relief Options and Benefits (2024)

Debt relief is available for these types of unsecured loans:

• Credit Cards
• Personal Loans
• Lines of Credit
• Medical Bills
• Collections
• Repossessions
• Business Debts
• Certain Student Debts

What Are The Options And Benefits Of Debt Relief

Hundreds of thousands of people have used debt relief to pay a lump sum that is less than the amount they owed.

If you choose to go this route, an expert will negotiate with creditors on your behalf to reduce your amount of debt. The next step is to set up affordable monthly payments for you to pay off the rest. You could see your accounts resolved in as little as 24-48 months. If you don’t have an income and saving money eludes you, you will not qualify for this method. But don’t worry, there are other options available for you to consider.

• Bankruptcy

Bankruptcy provides important protection for consumers who find themselves overwhelmed with debt. While a sizable amount will be wiped out whether you file for Chapter 7 or Chapter 11 bankruptcy, it is not an easy way out. There will be a stain on your credit report for 10 years and in your personal file for the rest of your life!

In addition, a chapter 7 bankruptcy would likely lower your credit score substantially and make it nearly impossible to qualify for new credit for 2 to 3 years. If a lender does approve you after that for a new loan, you can expect to pay high interest since rates are based on your credit score and history.

• Credit Counseling

This debt relief option simplifies your repayment process, making it easier to pay off your debt. When you contact an agency via a website or in person, a counselor will spend about an hour discussing your financial situation—often at no cost.

If your debt is substantial, the counselor may recommend a debt management plan (DMP). In this scenario, your counselor will determine how much you can pay before negotiating on your behalf with creditors. The outcome can be longer terms, lower monthly payments based on what your budget allows, or a reduction in interest rates.

If the majority of your creditors agree to your debt management plan, you would immediately stop paying them. Instead, you would send one payment each month to the credit-counseling agency. They are responsible for distributing the money to creditors per your mutual agreement.

The downside is that it typically takes five years to complete. During that time, you would be required to shelve the credit cards that aren’t in your plan and not take on any new credit until you have paid off your debt.

The benefit is that your monthly payment will be much lower than the amounts you are currently making. You may also have any penalty charges and fees waived. Best of all, you will put an end to creditors harassing you for payment.

• Self-Payment Initiative

This type of debt relief provides the option for you to try to pay off your debt on your own. It is not easy, but it can save you time and money. While you won’t be burdened with the fees that come with hiring someone, the odds of paying off your debts are slim given your financial history.

To start with, you need a plan that shows how much debt you owe and your ability to pay it off. This will provide a full picture of your financial situation, which is the important first step in getting it under control. The easiest way to do this is through a spreadsheet, which you can find for free on Google Docs:

Create four columns

• Include the name of the creditor
• The total amount owed
• Your minimum payment (if applicable)
• Payment due dates

Some people consider the next step cringeworthy: calling creditors to demonstrate your financial hardship. Be prepared to show documentation that backs up your claims. If you can convince creditors that you are short on funds, you can discuss the possible options that would enable you to meet your debt obligations.

There are three other possibilities you could discuss with your creditors:

• Have your interest rates reduced to lower your monthly payments
• Suggest a timeout period of two to three months during which time you would take a break from making payments. This will give you breathing room to get your finances reorganized and to save money that might allow you to catch up on payments.
• Have some or all your credit cards converted into repayment programs. Please note that you would likely be required to give your credit cards a rest. In turn, you would have fixed payments for a set amount of time.

• Debt Consolidation

When debt piles up, keeping up or catching up with your bills can become an uphill battle. Maxed out credit cards or cards with high balances need to be paid immediately, before they get completely out of hand. Consumers in this situation often turn to debt consolidation.

When you take out this type of loan, you use the funds to repay your high-interest credit card debt. The balances are then consolidated into a new, single loan with lower monthly payments at a reduced interest rate.

A debt consolidation loan could help you:

• Extend your repayment term
• Save money with a lower interest rate
• Lower your monthly payments

These type of loans are unsecured, which means no collateral is needed to guarantee it. Your interest rate will be based on your credit score, income, and other financial information. It is usually higher than that for a secured loan because the lender takes on more risk if the loan isn’t backed by collateral.

To avoid further debt, it is essential to work with an experienced debt relief company. They can help you pay off your debt and shape better spending habits moving forward.

• Minimum payments vs. debt settlement

A credit card minimum payment is the lowest amount you can pay every month while still keeping your account in good standing. By making minimum payments on your credit cards every billing cycle, you can avoid nasty late fees, penalty APR and a ding on your credit score. But it could cost you thousands of dollars in interest over a long period of time.

Debt settlement, on the other hand, can provide a financial breather and put you on the path toward rebuilding their credit. You will usually pay less than you owe and become debt free in a shorter amount of time. As you settle your debts, your credit score should start to recover.

• When Should You Consider Debt Relief?

Debt relief isn’t a one-size-fits-all solution. Before going over your options, you can save yourself time by seeing if you qualify to enroll in a debt relief program.

The odds are good you would qualify for debt relief if:

• You are paying just the minimums on your credit card bills or other loan payments
• You are still up to date on your bills, but you are living paycheck to paycheck.
• You have tried to pay down your debt on your own, but it was too difficult without support from an expert
• You are so overwhelmed that you have considered drastic measures like bankruptcy