Debt Relief: Understand Your Options To Get Out of Debt

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Once you are in debt, your only goal then becomes to get out of debt. Whether it is student loans, credit card debt or just merely the fact that your monthly payments have gotten unmanageable, getting a handle on your personal finances and working on repayment plans are the next best steps to take.

Unsecured debts or personal loans can snowball on you, and in order to stop paying high interest rates and improve your credit score, you are going to need a debt relief game plan.

Debt Relief: Quick Take

Debt relief comes in many forms and describes many ways you can start to rid yourself of debt, often through the help of a third party. It can range from seeking help from credit counselors from the National Foundation for Credit Counseling or even building a budget and repayment plan yourself. Here are some key takeaways about debt relief:

• Certain debt relief companies or programs are not right for everyone, so make sure to research which plan is best for your situation.
• Know what fees you’ll need to pay and what you need to qualify for specific debt relief plans.
• Understand who your debt is owed to, as in which debt collectors or creditors are being paid.
• Key debt relief goals include wiping out debt altogether, lowering your interest rates or monthly payments, or negotiating with creditors to accept partial payments.

3 Debt Relief Options

Here are a few debt relief options you can consider to help you start digging your way to level ground once again.

1. Debt management plans
2. Filing for bankruptcy
3. Debt settlement companies

Even little steps in the right direction go a long way. Instead of focusing on your debt as a whole overwhelming lump sum, break it down into manageable pieces.

1. Debt Management Plans

When seeking a debt management plan, make sure to choose one that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. The plans are generally designed to help with unsecured debts, such as credit cards.

Pros of Debt Relief Through Debt Management Plans

• Get free or low-cost services that advise you on how to budget and live within your means.
• Get an organized plan that maps out your debt, finances and repayment options.

Cons of Debt Relief Through Debt Management Plans

• You’ll have to close your credit cards and have to live without cards until the completion of the plan.
• Closing credit accounts can hurt your credit score.

2. Filing for Bankruptcy

Bankruptcy, as a term, can sound terrifying. However, if you can’t see your way through repayments, consulting with a bankruptcy attorney can be a beneficial strategy. For example, filing for Chapter 7 can alleviate unsecured personal loans, credit cards or even medical debts.

Pros of Debt Relief Through Bankruptcy

• A good option for large or overwhelming amounts of debt where repayments seem less likely, yet it’s still possible to keep your home.
• It stops creditor harassment and collection calls from hounding you.

Cons of Debt Relief Through Bankruptcy

• Causes severe damage to your credit score and stays on your credit report for 10 years.
• It can be expensive to file for bankruptcy, as it goes through the court system and comes with legal fees.

3. Debt Settlement Companies

Debt settlement tends to be a last stop for debt relief if you don’t qualify for bankruptcy. Essentially, a debt settlement company has you put money into an escrow account after you stop paying accounts you’ve enrolled in the plan. This often motivates collectors to accept a smaller amount than you owe as opposed to nothing. 

Pros of Debt Relief Through Debt Settlement Companies

• You can end up owing less than you originally owed.
• It’s an option to pay off debts at a faster rate than you would have previously.

Cons of Debt Relief Through Debt Settlement Companies

• Though they can opt for it in settlement cases, creditors aren’t legally required to accept less than you owe on your bill.
• Most companies charge fees, and stopping payment on your bills can harm your credit score.

Final Take To GO: Should You Seek Debt Relief?

If you have no idea how you’ll repay such unsecured debts as credit cards, medical bills or personal loans, debt relief can be a floatation device during certain financial storms. If the total of your unpaid debt equals more than half of your gross income, you may want to consider debt relief in the form of debt management, debt settlement or filing for bankruptcy.

Debt consolidation of any kind can help streamline your repayment process and help you start getting you back on your feet.

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