There is a startling moment in many people’s lives when they suddenly realize that their debts have gotten totally out of control. It can feel as if all the air has been sucked out of your life and that you’ve been reduced to gasping for help. Fortunately there is help available. In fact there are three good ways to achieve debt relief.
3 Good Ways To Achieve Debt Relief
Which of these options would be best for you? Only you can determine this based on your financial situation, your lifestyle, how deeply you are in debt and the nature of your debts. But these considerations aside here are three good options for achieving debt relief.
Consumer credit counseling
One of the first choices for most folks is through credit counseling. This is where you find a reputable, nonprofit credit counseling agency that has certified and trained credit counselors and that charges either nothing or very little for its services. When you find such an agency, you will be assigned a counselor that will review your spending and suggest improvements or places where you could make cuts. He or she will evaluate the state of your finances to give you a realistic picture of where you stand now. Your counselor will help you develop a budget to generate more cash flow or the amount of money you would need to pay down your debts each month. Alternately, your counselor might suggest that you participate in a debt management plan (DMP).
How a DMP works
If your counselor can’t help you determine a way to pay down your unsecured debts he or she may recommend a debt management plan. This is where the counselor figures out exactly how much you can afford to pay your unsecured creditors each month in order to eliminate all of your debts over a three- to five-year period. Your counselor then contacts your creditors to see if they will agree to let you pay the amount you can afford. In some cases, your counselor may also ask your creditors for other considerations such as lowering your interest rates and waving or reducing any fees you owe. Most lenders will agree to the payments you need, especially if they believe that if they don’t, your only alternative is filing for bankruptcy in which case they’d get nothing.
A debt consolidation loan
A second way to achieve debt relief is via a debt consolidation loan. There are two types of these loans – secured and unsecured. If you have decent credit you might qualify for an unsecured loan, which is often called a signature loan because basically all you do is sign for it. This can be better than a secured loan but the caveat here is that you must have good credit to qualify. If not, you’ll have to settle for a secured loan, which is where you are required to pledge an asset to “secure” it. In most cases that asset will be your house and the loan will be either a home equity loan or a homeowner’s equity line of credit (HELOC). Both these types of loans are risky in that if you were to default, your lender could repossess your house and you could end up homeless. However, there are several advantages to a debt consolidation loan besides just debt relief. For one thing, you would consolidate all of your current payments into just one new one. In addition, that new payment should be much less than the sum of the payments you’re now making.
The major downside is that you can lose your home if you default on your debt consolidation loan so you don’t want to rush into this type of debt relief program.
A third option for achieving debt relief is through debt settlement. There are two ways to do this. The first is where you contact your creditors and offer to settle your debts for less than you owe. While it’s virtually impossible to do this with secured debts such as an auto loan or mortgage, it is possible with unsecured debts like credit card debts and medical debts. The second alternative for debt settlement is to hire a company such as National Debt Relief to do the negotiations for you. Professional debt settlement companies are able to negotiate settlements on your behalf.
There is a 4th debt relief program – bankruptcy
The fourth way to achieve debt relief is by filing for bankruptcy. However, as many people have learned this can be a less than ideal option. A bankruptcy will stay in your credit file for either seven or 10 years depending on the credit-reporting bureau. It will also stay in your personal file for the rest of your life.
A bankruptcy will make it very difficult to get new credit for two to three years. And when you are able to get new credit it will have with very high interest rates. Finally, and maybe most importantly, there are a number of debts you cannot discharge in a chapter 7 bankruptcy. This includes your secured debts such as auto loans and mortgages and also alimony, child support, any debts you owe the government, spousal support and student loan debts.
Be sure to evaluate all of your debt relief options before you decide on which one is best for your unique situation. You can get free consultations to go over your finances and see which one makes the most sense for you.