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How Debt Relief Can Help You

Financial stress is something many individuals will eventually experience. Therefore, if you are currently deep in debt and struggling to get out, the first thing you must know is that you are not the only one to go through this. Life is full of financial obligations, such as student loans and automobile payments. Those financial obligations can be difficult to meet under the best circumstances, but life is also full of surprises. Many of those surprises can have a direct, and often unpleasant, impact on your financial situation. For example, if you suddenly lose your job, bills you were having no problem paying before may suddenly seem like insurmountable obstacles you cannot get over or around. However, you actually do have several debt relief options at your disposal. By taking advantage of one or more of those options, you may be able to reduce the amount you have to pay towards your debt each month, or even eliminate some of your bills entirely. Below is a brief overview of several of the best debt relief options.

Personal Debt Relief Practices

There are several personal debt relief practices you can undertake to reduce your debt or make it easier to pay off. First, you must create a budget. A budget will help you determine exactly how much money you can afford to pay toward your existing debts each month. Once you have that figure, you can use the information to negotiate with representatives of organizations like credit card companies. Contact your creditors quickly when your financial situation changes and you have a plan for how to repay them. When you show such honesty and initiative, many of them will be willing to adjust the terms of your repayment agreements. You should also:

  • Consider selling your vehicle if you are threatened with repossession to preserve your credit report status.
  • Familiarize yourself with the legal restrictions placed on debt collection agencies, such as the fact that you can legally order them to cease contacting you in writing.
  • Be aware of and report possible debt collection scams.

Renegotiating the terms of your home mortgage may also be necessary. There are several ways your lending company may be able to assist. They include:

  • Allowing you to not pay your mortgage for a period of time, but increasing the size of the payments when they resume.
  • Increasing the amount of time you have to pay the total loan balance and reducing the size of your monthly bill.

Although your lender may be willing to work with you in such ways, you must understand those options can have consequences. For example, you may be charged fees for changing your mortgage terms. You will also undoubtedly have to pay additional interest if your loan period is extended. Therefore, you must consider such options carefully before implementing them.

Debt Relief Services

Another option you have to reduce your debt is to use debt relief services. One such service is the service offered by a debt settlement company. A debt settlement company will offer to negotiate with your creditors on your behalf to reduce the total amounts owed to them. However, you may be required to transfer money to a specific bank account up front to cover those negotiation services. Also, the debt settlement company may require you to stop paying your creditors while negotiations are taking place. Such requirements may lead to multiple problems, such as:

  • You may be unable to accumulate the required sum to cover negotiation costs, which must often be deposited over a period of many months or years.
  • Even if you meet your financial obligation to the settlement company, company representatives may be unable to make deals with all of the creditors involved.
  • Unpaid creditors may charge you fees and additional interest during the negotiation period.
  • You may be victimized by an unreliable debt settlement company run by scam artists who have no intentions of negotiating to settle your debt.

Debt Consolidation

Another form of debt relief is consolidation. Consolidation is a process in which multiple debts can be paid off quickly. One of the most common ways to consolidate debt is to access the equity in your home. Taking out a home equity line of credit or mortgage can give you the cash needed to pay off many, or all, of your other debts right away. However, doing so will leave you with a substantial debt to pay.

One benefit of consolidating your debt is you will then only be responsible for paying the single bill for the loan. Also, you can often extend the amount of time you have to pay off debt by consolidating it. For example, if credit card company representatives are requesting immediate payment, taking out a loan can allow you to pay them right away. Then the terms of the loan may allow you to take several years to pay back the debt in full. Also, there can be tax breaks associated with taking out a consolidation loan on your home. However, there may also be disadvantages of consolidating your debt with such a loan, including:

  • interest will be charged on the loan.
  • Fees may also be charged for processing and other loan-related procedures.
  • Points, or percentages of the loan, may need to be paid back at set times.

Declaring Bankruptcy

Another debt relief option you have is declaring bankruptcy. Declaring bankruptcy can allow you to liquidate any assets you have. The money you receive from that process can be used to pay back debts you owe. However, it is recommended you only consider declaring bankruptcy as a last resort because the process can:

  • Negatively impact your credit report for 10 years.
  • Prevent you from obtaining life insurance.
  • Make purchasing a home or obtaining lines of credit difficult.
  • Decrease your likelihood of being hired when applying for certain jobs.

If you do decide to declare bankruptcy, you must choose which type to declare. Declaring Chapter 7 bankruptcy will liquefy all assets. Declaring chapter 13 will allow you to keep your vehicle, your home and, in some cases, other types of personal property. However, you can only do so if you are employed on a full-time basis or can otherwise prove you have a sufficient and steady income.