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Debt Relief Programs: Struggling With $10k or More in Debt?
Simply, debt relief is the actual process, or the tactics utilized, to help eliminate or reduce debt for an individual. Today, there are ample of debt relief programs that are designed to help accelerate the process. From debt management, debt consolidation, to even some do-it-yourself budgeting techniques, if you are suffering from high-degrees of debt, there are programs available to help you. In today’s article, we are going to explore the many different debt relief programs that are available and their advantages and disadvantages. By the end, you will have a greater picture of what are the best debt relief programs for you, and whether you should consider debt relief or not.
Understanding the Different Debt Relief Programs
With a brief understanding of what debt relief conceptually means, we are going to explore the depths of different debt relief programs and what benefits and disadvantages they present. Please do keep in mind, we are not favoring any specific debt relief program – we are simply stating the evident facts revolving around each debt relief program.
Out of all the different debt relief programs, bankruptcy should be seen as the absolute last option, as if none of the other debt relief programs would work. It’s important to know that bankruptcy is an incredibly risky decision as it places many restrictions on consumers, depending on the type that you file. There are two different types of bankruptcies: Chapter 7, where all debts are removed, and Chapter 13, where an individual is set up on a plan to pay off all debt.
- No Assets Effected – When an individual files for bankruptcy, none of their main assets will be taken away, including cars, home, and even clothes.
- Fresh Start – One of the best advantages of bankruptcy is that individuals who file for this debt relief will receive a fresh start, after the restrictions have passed.
- Goodbye Creditors – Another benefit of this debt relief program is that creditors will no longer be able to contact you regarding debt.
- Expensive – Bankruptcy can be incredibly expensive. Before you are quick to file, consider the amount of fees and charges that you will need to pay.
- Credit Score Decreases – The biggest disadvantage of bankruptcy is that, once filed, an individual’s credit score will be debilitated, literally. For the next 7 years, that consumers credit report will show the bankruptcy, which will result in higher interest rates and potentially not being accepted for more pertinent loans.
When it comes to different debt relief programs, many people tend to disregard credit counseling as an option. This is a free option where consumers can seek professional advice from credit agencies. These companies will offer their best advise and perspective as to the consumer’s situation. In fact, these companies will help craft the best possible debt relief solution, all at which is free!
- Professional – One of the best parts about this debt relief option is that consumers can communicate and ask questions to trained professionals in the field. Typically, these credit counseling companies are all recognized, meaning they understand even the most complex aspects of the industry.
- Solutions for Consumers – Credit counseling will provide consumers with all of their options to handling their debt. Since these companies or agencies are not in it for the money, consumers can receive unbiased perspectives as to how to handle their debt.
- FREE – The absolute best part about this debt relief program is that it’s free. Instead of having to sign a contract with any other debt relief program, credit counseling is an outlet for individuals to gain the knowledge they need before they may just a grave financial decision such as debt settlement or bankruptcy.
- False Advertising – the most common disadvantage or compliant discussed when it comes to credit counseling is that, in some cases, credit counseling agencies do not share the right information, or follow through with what was advertised or discussed. With that being said, it’s advised to do thorough research before investing any time in this debt relief program.
Debt consolidation has built a name in the debt relief industry as a risky option that presents some great opportunities, if done properly. At the core, debt consolidation is a debt relief program where an individual opens one loan to pay off all claimed debt. The goal behind debt consolidation is to minimize the amount of monthly payments, reduce the interest rates, and decrease the monthly payment. In light of this, as one might imagine, the benefits may be grand; however, if not handled properly, the disadvantages can be slightly bigger. This applies to a student debt relief program too.
- Less Stress – Debt consolidation can quickly remove the financial stresses and burdens that typically come with multiple monthly payments. This can be attributed to only handling one monthly payment or the decrease in the interest rates.
- Opportunities – This form of debt relief gives consumers multiple options, whether they choose to partner with a debt consolidation company, bank, or even credit union. In other words, it can be considerably easier for consumers to find better interest rates and deals with these debt consolidation programs.
- Experts – Another great advantage of debt consolidation is the ability to communicate with debt relief experts. These individuals are trained in minimizing and eliminating debt.
- High Requirements – One of the biggest disadvantages of this debt relief program is that not everyone can be accepted into debt consolidation. If you suffer from debt and a poor credit score, debt consolidation may not be a feasible option.
- Risky – Debt consolidation is one of the riskiest options in the debt relief field. It’s important to avoid consolidating any secured loans, such as your home. If you place such an asset on the table, you may be at risk of losing it.
- High Fees – Given the volatile nature of this industry, debt consolidation is one of the only debt relief programs that tends to have higher fees, all of which are technically hidden in their contracts. Be sure to investigate before signing any contracts!
In the industry today, debt management tends to be one of the most popular debt relief programs available. In fact, financial experts tend to believe that debt management is the least riskiest of all debt relief programs. Debt management is a unique debt relief program where consumers can enroll and receive professional debt relief strategies from debt management specialists. Once an individual signs a contract with a debt management company, they are required to pay off the principle of the loan, in a given time frame. With debt management individuals can include any form of unsecured debt, including credit cards and even medical bills.
- Established Budget – one of the best aspects of best debt management programs is that it promotes putting a consumer on an established budget. In fact, agencies will help craft a stable budget that balances not only paying off debt, but other monthly expenses, including food and gas.
- Beneficial for Credit – once a consumer enrolls in a debt management plan, if they make on-time payments, it’s proven that their credit score will improve. In other words, there is a great reward for consumers if they stay true to the budget established by the management company.
- Organization and Strategic – Another significant advantage of signing up for debt management is that this debt relief program is organized and strategic. Individuals can simply make their one monthly payment and ensure all of their bills will be covered.
- Length of Time – the most notable disadvantage of debt management is that it could take up to 5 years for an individual to pay off their entire debt. As far as debt relief is concerned, consumers might be able to find better deals with other debt relief programs.
- Expensive – When it comes to this debt relief program, you can guarantee you will be charged high fees for maintenance and even an enrollment fee, effectively making this one of the most expensive debt relief programs.
- Risk and Rates – Another disadvantage to take into consideration before signing up for this debt relief program is that, if you need to leave the debt management plan for any reason, you will be charged high fees and the interest rate will spike.
Debt settlement is another debt relief program that is available to consumers who are struggling to find a way to eliminate their debt. In the industry, debt settlement is probably one of the most controversial methods. With debt settlement, consumers can partner with debt settlement companies, like Freedom Debt Relief or National Debt Relief, who will negotiate with creditors a new balance amount – instead of paying the current amount of debt. Unlike debt consolidation, debt settlement is typically the most preferred method for individuals with poor credit.
- Reduce Debt – Debt settlement, if done properly can help consumers reduce to their debt significantly. However, it’s important to be aware that many creditors do not like debt settlement, which may lead to a whole new string of issues.
- Unlock the Experts – When you sign up for this debt relief program, you will unlock access to the debt settlement experts. These professionals are trained in handling personal finances and negotiating with creditors.
- Reduce Stress – signing up for a debt settlement program may help eliminate or at least alleviate some degree of stress.
- Creditors Don’t Like It – As we discussed earlier, creditors tend to disagree with debt settlement plans and companies. As a result, credit card companies may not accept offers. Learn more about how to consolidate credit card debt as another option.
- Credit Score Plummets – The biggest disadvantage of debt settlement is that it will significantly hurt an individual’s credit score. This will be reported on an individual’s credit report for seven years – or until the matters are settled.
- Too Much Money – After the entire debt settlement process has finished, individuals will find themselves paying off way more than the initial costs.
Handling Your Own Debt
Out of all the debt relief programs, the one that is on the rise is “DIY” debt relief programs. Reason being, the debt relief industry has developed such a negative connotation due to the risk and false advertising that more and more people are finding their own methods to eliminating debt. The truth is, all debt can be eliminated through an effective budget. However, many people are unaware or lack the financial skills to develop a budget to do this. With that being said, we have a few tips and tricks that can help if you are interested in this debt relief solution:
- Budget – The best tip that we can share with anyone to handle their own debt is to create a budget. Take the time to track your spending, figure out how much money you are making each month, and the total debt that is paid each month. From there, you can develop a game plan, based on your own pay checks. If you are not great in the math department, there are budgeting software tools that may help.
- Negotiate Yourself – One common misperception that people have is that in order to negotiate credit cards bills, you need to use a credit card relief program. The truth is, you can negotiate your own credit card debt and bills with credit card companies.
- Refinance Mortgage – Another option that can help manage your debt is through refinancing your mortgage in efforts to secure even better rates. Keep in mind, this is another significant financial risk that must be taking with great precaution.
Eliminating Debt Once and For All
At the core all debt relief programs – consumers and companies are seeking to eliminate debt once and for all. Now, the reality is, if you are seeking to eliminate debt from your life, a debt relief program may only be temporary. The truth is, if you are seeking to remove debt from your life, one needs to begin working on their financial habits and traits that are causing them to be in debt.
This could be the reason why debt management is considered the most favorable option as this debt relief program is designed to get consumers on a dedicated budget. With that being said, no matter the debt relief program that you choose, the best thing that you can do to reduce or eliminate debt is start working on your own financial habits. In doing so, you can quickly accelerate the debt relief process, effectively achieving financial freedom.
Carl has years of experience helping people tackle debt. As a Senior Financial Advisor, he knows the ins and outs of debt consolidation and debt management. He holds a Masters Degree in Finance and according to him, not all debt problems are the same and that’s why it’s important to take a look at the different options available for your situation.