Find relief from debt
The last two years have been full of difficulties, with a significant number of people losing their jobs. However, as the New Year approaches, you need to make tough financial decisions.
Your first agenda should be on how to clear or reduce your debts to achieve a debt-free lifestyle. The best way to go about this is to apply debt relief solutions. An elaborate debt relief solution can help you:
Most people file for bankruptcy when they cannot pull themselves out of debt. This may seem like the best solution, but can have long-term repercussions. Filling for bankruptcy can affect your credit scores and even limit your chances of securing credit cards, loans, or even employment in the future.
Debt relief is used to refer to several strategies employed to help ease debt management. These strategies are not one-shoe-fits-all options; they vary based on a person’s type of debt. This means, what works for you may not work for another. Your debt relief program helps you tackle your debts by providing what is needed the most.
For example, you can get a debt consolidation if you are struggling with multiple debts or get a credit card debt relief if you are drowning in credit card bills. Under debt relief, you can access debt management plans, credit counseling, and debt settlement.
All these approaches are different; however, the result is the same. In simple terms, debt relief is a way of helping people find a workable solution on their journey to get out of debt.
Debt relief programs ease the process of eliminating your debt. However, for these programs to be effective, you need to accept your financial state and be open to solutions to help you manage your debts.
Once you decide to get out of debt, the next step is to choose a debt relief strategy. As stated before, these strategies work differently based on your type of debt. Some ways these programs work include:
• Consolidating debt.
• Interest rate reduction.
• Reducing the principal amount owed.
• Loan refinancing.
• Changing your loan repayment and credit card terms.
As stated before, debt relief programs are not universal and don’t apply to every type of debt. This being the case, there are different approaches you can take based on the debt size and the type of interests you are servicing.
Debt consolidation is one of the most popular strategies used to manage debts effectively. This strategy is used by people with several credit lines and loans to repay. However, before settling on this you need to understand what debt consolidation is and how it works.
Simply put, debt consolidation means merging all your debts into one. For example, you can merge your credit card debts with a personal loan to form one enormous debt. This way, you can concentrate all your efforts on servicing one debt instead of channeling funds to different accounts.
Debt consolidation is the process of combining multiple debts into one loan with a lower interest rate. This can be helpful for those struggling to keep up with several monthly payments. In order to consolidate your debt, you need to have at least two debts.
The most common way to consolidate debt is through a personal loan. This type of loan will offer you a lower interest rate than your current debts, and can be used to pay off multiple creditors at once.
Consolidating your debt may not be the best solution for everyone. If you have high-interest debt, consolidating could actually end up costing you more in the long run. Make sure to do your research before deciding if debt consolidation is right for you.
Debt consolidation can be a helpful tool for those struggling to keep up with multiple monthly payments. By consolidating your debt, you can get a lower interest rate and pay off your creditors all at once.
Another option under debt consolidation is the use of balance transfers to manage your credit card debts. This strategy involves opening a new credit card account, preferably one that charges a low or 0% annual rate. Once the account is operational, you can transfer all your existing balances to this card. Just make sure that you use the 0% interest introductory period to pay off the debt.
Credit counseling involves bringing onboard a credit counselor to discuss your finances, debt, and budget. One of the greatest selling points of working with a counselor is that they can review your finances, expenditure and help develop a personalized plan to help you manage both.
Contracting the services of a credit counselor is also an ideal option if you are only looking for someone with insights that can help you come up with an effective debt repayment scheme.
Aside from helping you develop a customized debt management plan, a counselor can help educate you on basic budgeting issues that may have contributed to your current financial status. The best part is that you can find several nonprofit credit counseling agencies that offer their services for free.
However, before signing up with any counselor or agency, it’s advisable to review the counselor’s certification status and the agency’s accreditation. Either of the two needs to be certified by the Financial Counselling Association of America or the National Foundation for Credit Counselling.
Most credit counselors advise and help their clients come up with an effective debt management plan as an effective debt relief solution. Debt management plans often work similarly to debt consolidation in that you only make one payment towards your debts every month. In most cases, a debt management plan works by:
The only difference between DMP and debt consolidation is that you don’t have to open a balance transfer credit card or take out a new loan. Having a workable debt management plan can help lower your interest rates or get favorable interest rates. Sometimes, this plan can help you get certain fees wavered, leaving you to service the principal amount owed.
This is usually the last solution on the table. Under this program, they give you a chance to clear your debts for less than what you owe. When a creditor agrees to debt settlement, they cancel all remaining debt. Debt settlement is usually a reprieve or forgiveness since you don’t have to pay more than the agreed-upon amount.
You choose to settle your debt on your own, provided you have the funds and are confident in your negotiation skills. However, if you are uncertain, you can get the services of a debt relief company. Here, you pay for their services to help you get credit card debt-relief or loan relief.
You need to remember that you need to be past due on your payments for a creditor to consider any form of settlement.
Debt settlement may seem like a simple solution to your financial woes; however, it comes with serious repercussions. This solution can really affect your credit score because of late payments. You may also experience income tax implications regardless of how you choose to settle the debt, personally or through a company. This is because the amount forgiven in your debt may be taxable income.
Yes. It is possible to settle your debt for less. This is only possible if you choose to implement debt settlement is your best strategy when managing debt. Debt settlement is basically a program that allows you to pay off your debt in a lump sum.
However, this amount is usually less than the original debt. As stated before, you can choose to go at it personally or hire a professional debt relief agency. At face value, debt settlement may seem like the best course of action when clearing your debts. However, it’s best to note that this solution can sink you further into debt while negatively affecting your credit score.
Being stuck in debt is one of the greatest hurdles to achieving financial independence. Debt-relief programs have so far proven to be the most effective way of managing and getting out of debt. However, this decision needs careful considerations.
Depending on the program you choose, there may be a few trade-offs you may have to make. Before applying for these programs, here are a few things to consider.
Choosing debt consolidation or opening new credit transfer accounts can offer debt-relief. However, you need to consider the costs involved. Consolidating all your debt in one location could mean most of your monthly earnings are directed towards settling the debt, meaning faster repayment and less interest accrued.
Not every debt-relief program comes for free; sometimes, you may have to pay a fee. You need to decide whether it is worth it before committing. For example, you may have to pay for the services of a credit counselor to help you develop a workable debt management plan.
Debt relief agencies also charge a small fee to help you negotiate for your debt settlement. You need to weigh your options and see the value before spending more.
When contracting the services of a Debt-relief agency for credit counseling, debt settlement, or debt management plan, you need to ensure you are working with a legitimate company. Overlooking this could cause you to fall victim to a debt-relief scam.
It’s also advisable to understand the difference between these programs and how they work. This way, you can fully understand what you are getting yourself into.
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