Debt relief is any strategy you take to get out of debt or to manage your debt so that you can function normally and keep up with your bills and living expenses. It usually refers to situations in which your debt has become too overwhelming to manage on your own.
Debt relief includes debt management plans, debt elimination programs, debt consolidation, and debt settlement. It also refers to bankruptcy, although that is perhaps the most extreme method you can use.
In many cases, all companies offering debt relief options are referred to as the debt relief industry. Learn more about each option so that you can make an educated decision about the best debt relief method for your lifestyle and situation. Each one comes with different pros and cons. By weighing each choice individually, you can find the perfect fit to help alleviate your personal debt.
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When to Get Debt Relief
There are lots of steps to take when it comes to getting debt relief, but one of the first steps is to recognize you need it. This isn’t hard to determine for most people. Almost anyone who can’t keep up with their monthly payments and is overwhelmed by financial stress probably needs some form of consumer debt relief.
This is especially true if you’ve begun to use credit cards to pay for all of your living expenses, or are doing things like using payday loans for financial emergencies. If this sounds like you, then it’s time to take a step back and look at all of the available options, otherwise, you’ll fall victim to an endless cycle bills, fees, and burdensome debt.
How to Get Debt Relief
Many people are concerned about beginning a debt relief program because they don’t know who they can trust. This is a very valid concern and the reason why it’s always a good idea to first seek credit counseling. Due to emotion and stress, there is a lot of understandable fear surrounding debt relief programs and how they work.
A non-profit credit counselor or debt consultant can answer your questions and give you an objective point of view on the options available. They can also help to steer you away from obvious scams. There are many reliable resources available to find a credit or debt counselor who is fully trained and only has your best interests at heart.
Most are either free or charge only a small fee to cover their operating expenses. If a debt counselor wants you to pay a large sum upfront, it’s best to find someone else.
Once you realize that much of your fear and concern is related to desperately wanting to find a solution to your debt problems, it becomes easier to see what works and what doesn’t. You can then clearly evaluate which programs might be best for your situation, and which programs might be best to avoid.
It’s also always a good idea to thoroughly research any program you decide to use. Each one will take a different length of time to go into effect, and each will also have a different impact on your credit score. That, in turn, affects what kind of credit you’ll be able to access in the future, so it’s wise to consider your future borrowing needs as part of the evaluation process.
What Are the Different Types of Debt Relief?
Debt relief comes in several forms, some of which can be combined into a comprehensive debt management plan or debt elimination program. Here are some of the most widely used types:
- Personal Budgeting – The right budget can sometimes go a long way toward providing debt relief. Often you’ll need help creating it. Many times it will work best when used with another program.
- Debt Consolidation – This type of debt relief involves taking out a loan to pay your debts, which allows you to bundle many debts into a single, more affordable payment.
- Debt Negotiation – With this program, you make a lower monthly payment into a separate insured account that will eventually be used to pay off a lower debt amount negotiated with creditors on your behalf.
- Debt Settlement – This program is the end result of a debt negotiation, in which your debts are reduced to a lesser amount, or “settled.”
- Bankruptcy – As a last resort, you many qualify for debt relief under the Federal Bankruptcy Code.
Refinancing Your Mortgage
There are other strategies and options for relieving debt such as consolidating your debt with a personal loan or refinancing your mortgage. Although there are fees involved with refinancing, you can often save yourself a lot of money and lower your monthly payments by getting a lower interest rate on your mortgage.
This is especially a good idea when mortgage rates are low and you bought your house with a higher rate. And you don’t have to stick with your current lender. Shop around for different rates and fees to find the best deal on the overall costs of the loan.
If you have a substantial amount of equity in your home — typically 20% or more — you could also qualify for a cash-out refinance or a home equity line of credit. You normally are required to get a home appraisal performed to confirm the value of your home, which generally costs a couple hundred dollars. If you qualify, these two methods allow you to utilize your home equity for other purposes, including debt consolidation.
If you can afford the associated costs and they make sense, you could use money from your equity to pay off your debt. The major benefit here is that home loan interest rates are substantially lower than credit card and personal loan interest rates. That can potentially save you an enormous amount of money compared to paying off your high-interest loans or credit cards individually each month.
Renegotiating Your Credit Card Bills
Credit card companies will sometimes negotiate new terms with you. It’s as easy as giving them a call and asking for a lower APR. It only takes a few minutes and can often make a big difference in your quest to relieve your debt.
You will be surprised how many credit card companies are willing to negotiate. It’s free, easy and the worst that can happen is that they say “no.” If that’s the case, you can always consider transferring your balances to another credit card. But if you’re a long-time customer and make at least the minimum balance payment each month, you have a good shot at making this one work for you.
Debt relief takes a lot of work and consistency, no matter which method you choose to utilize. But the benefits you’ll receive are invaluable. Not only can you save yourself money on both current and future interest, you’ll also sleep easier knowing that you’ve got your finances under control.