Being in debt is the worst. Having the debt continue to pile up is scary. Endless harassing phone calls can feel like a situation of borderline insanity. The juggling act to pay the debts, deal with the threatening letters, while earning and maintaining a living is no fun. Needless to say that being in debt of any kind can cause anxiety and fear – and it is particularly burdensome when the total monthly debt payments are more than what you actually earn.
Here Are Some Ways to Get Debt Relief
OPTION ONE | PAY OFF YOUR OWN DEBT
This is exactly what it sounds like. Paying your own debt yourself is a very straightforward but detailed process. It involves analyzing every penny of your debt, putting together a logical plan to pay it all off, and doing just that. It may involve calling each and every one of your creditors, negotiating new payment schedules, and ultimately balancing an already stretched earning and payment schedule. It may involve negotiating lower interest rates. Instead of hiring a debt counselor, many people do opt for this DIY method.
They employ the same tactics the professionals do:
- They contact creditors
- They provide documents to prove why their debt is arrears
- They negotiate new payment schedules
- They negotiate new interest rate packages
- They negotiate lower fees
- They create a household budget and develop a repayment plan
- They get to work, and start repaying debt
The good news is that you may directly negotiate with creditors to pay off your debt. It does not require the additional expense of having someone negotiate your debt for you. However, the bad news is that it is not always a guaranteed path to success. Those who opt for this path may invariably run into problems. If they can't pay a month or two, the overall debt problem can actually get worse. This is where it makes sense to hire professionals who will negotiate a low monthly payment that is actually affordable.
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OPTION TWO | CONSUMER CREDIT COUNSELING
Individuals facing debt obligations, who cannot make timely payments, often seek the help of a consumer credit counseling agency. These agencies first help the debtor determine the healthiest approach to their particular financial situation and then offer credit counseling services to address the debt and restore credit.
Based on the level of debts, and the damage to the credit score, a consumer credit counseling agency may advise the individual to adopt what's called a debt management plan. This plan would start by getting a realistic grasp of overall earnings and what the individual can afford to pay each month. Then, the counselor would step in and try to negotiate each debt with the creditors – banks, lending institutions, credit card companies, etc. A successful negotiation would stretch the debt out for as long as five years and lower the interest rates, thus reducing the overall debt obligations. When some or all of the creditors agree to the debt management plan the debtor would stop paying all of the creditors. Instead, they would pay the consumer credit counseling agency once a month. Then, the agency would disperse the payments to the creditors based on the debt management plan. While on this plan, you would be asked to give up all your credit cards and not to incur any addition debt.
While there are hundreds of consumer credit counseling firms available at your fingertips, it's critical that you find one that best suits your needs. Some charge fees, some charge percentages of your debt, and some imply they charge nothing.
OPTION THREE | DEBT CONSOLIDATION
The third debt relief option is what's called debt consolidation. Debt consolidation is a way to reduce a whole group of loans or debt payments into one payment. It literally means that you are taking out yet another loan to pay off all the other loans. That loan is a consolidation loan, consolidating all other debts into one. The majority of the time, one must secure this loan consolidation with a home equity loan and a good credit score. People with higher levels of debt usually consider this option attractive.
The trick with debt consolidation is not falling into the trap that most do – thinking that a debt consolidation will wipe the slate clean. It won't. While debt consolidation can be helpful, it's simply a band-aid and not a cure for the reasons the debt was incurred in the first place.
OPTION FOUR | BANKRUPTCY
The fourth and probably most commonly known debt relief option is bankruptcy. If the individual is unable to pay debts because of time or no income, the proverbial last option in the book is bankruptcy.
There are two types of bankruptcy options for individuals: Chapter 7 and Chapter 13. The difference is simple, and stark. A Chapter 7 bankruptcy is what's called an “asset liquidation.” It literally liquidates or sells off all applicable assets until your creditors are paid off. While there are some exempt assets, it is a drastic step. A Chapter 13 bankruptcy is a bit less drastic, and equally as effective. A Chapter 13 is a “reorganization.” It's a bit more timid and practical than a Chapter 7. A Chapter 13 bankruptcy is filed so that the debtor can reorganize their finances in such a way as to satisfy creditors. Like any other debt relief option, the specific steps and numbers involved vary from case to case.
The consequences of filing for bankruptcy are many:
- Negative impact on your credit rating for ten years
- Inability to file for any credit for up to three years, or more
- Higher interest rates on all credit issued, if any
- Higher payments for car insurance, renters insurance, and the like
- Negative impacts on house or apartment rental approvals
- Bankruptcy noted on employment records, or additional personal history
OPTION FIVE | DEBT SETTLEMENT
In the past, debt settlement was frowned upon for many reasons. Today, it is considered a judicious financial path. Debt settlement addresses the overall debt through communication with creditors and payments. And, unlike a debt consolidation loan, it alters the debtors ‘behavior and can lead them down a path of increased financial responsibility. It thereby reduces the probability of debtors finding themselves in the same situation.
Debt settlement involves hiring a debt relief company to negotiate with creditors. The negotiations involve reducing your overall debt by having the creditors agree to take less than the balances owed. Then, to satisfy the debt, there are lump sum payments made to the creditors. For example: Let's say you owe $22,000 to one institution. The debt negotiator could work with the creditor to negotiate the $22,000 down to $12,000. You would then pay off the $12,000 to close that entire debt obligation. In this case, the debtor gets out from under that debt for nearly half of what they owed, and the creditor gets a lump sum payment for money they were trying to collect.
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Not all debts are eligible for enrollment due to our underwriting guidelines. Clients who make all their monthly program payments pay approximately 42% of their enrolled debt balance before fees or 67% to 71% including fees, over a term of 1 to 60 months. Our service fee is approximately 20% to 25% of the enrolled debt amount enrolled. Not all clients complete our debt relief program for various reasons, including their ability to save sufficient funds while in our program. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of debt settlement. Please read and understand all program materials prior to enrollment, including potential adverse impact on credit rating. We look forward to assisting your shortly in settling your debts at Strategic Debt Relief 1711 Kings Highway, 2nd Floor, Brooklyn, NY 11229.