If you’re like most Americans, you find yourself struggling to stretch your budget from paycheck to paycheck. When unexpected events or larger bills come up, you may have felt stuck in a cycle of minimum payments with no hope of ever getting ahead.
However, there are several ways out of this financial trap.
Debt relief is the term for the various mechanisms used for getting out of debt and moving forward with your life. Debt relief can take different forms, and one may work better than another. While seeking debt relief can offer some advantages, there may be cons to weigh in the balance.
Here’s more on how debt relief works. Read on to see when you should consider debt relief, what the options are, and the benefits and drawbacks of each option.
When to Consider Debt Relief
First, it’s important to understand that debt relief involves a cost, in either making payments of some kind, a hit to your reputation, an investment of time, or some combination of all three. Thus, debt relief should not be viewed as a quick and easy solution.
If you can realistically create a plan to repay your debts normally within five years, then the best choice would be to avoid debt relief solutions. If however you do not see any way to make progress on your debts in the next five years, then debt relief should be considered since essentially you have nothing to lose. The resources at https://www.freedomdebtrelief.com can help you decide if debt relief is right for you.
Debt Relief Options
Debt Management: This option involves talking to a credit counseling agency to get your situation evaluated and set up a plan. The plan involves you making just one payment each month to the agency, and then the agency makes payments as needed to your creditors.
Typically, credit counseling agencies are able to negotiate lower rates and the waiving of fees, which enables paying off your debts more quickly than you could otherwise.
This strategy does have few drawbacks to consider. While you are enrolled in the debt management plan you will likely be unable to apply for new credit, and the accounts you had will be closed. Your credit score will also dip somewhat, although once the plan is completed there will be no significant impact on your credit score.
Debt Settlement: Debt settlement is similar to management; in that you’ll have a third party working on your behalf. The difference is your settlement agent will try to secure payoff deals with your creditors for less than the amount of your outstanding balances. Creditors often agree to this in exchange for one-time payments in full of the agreed upon amounts.
This means you’ll need to have the cash on hand to fund the deals. To get it, you’ll deposit the money you would have been using to pay the creditors each month into an escrow account from which your settlement agreements will be funded. The upside is you can kill the debts for less money; the downside is the process does take a rather significant toll on your credit standing. However, odds are your credit score has already taken a substantial hit if you need to avail yourself of debt settlement.
Bankruptcy:Filing for Chapter 7 bankruptcy protection can erase all of your credit card debt, personal loans, or medical debts with just a few months of effort. This could easily mean tens of thousands of dollars’ worth of debt simply gone and a fresh start on life, if you qualify.
However, it is strongly recommended that you sit down for a free consultation with a bankruptcy attorney before taking this drastic step. A bankruptcy will remain on your record for 10 years and have an extremely negative impact on your chances of securing any credit or leases during that time. What’s more, many employers and services also ask to check your credit as a way to analyze your reliability. You may find it difficult to get your dream job, or that you need to pay large deposits just to have car insurance or turn on your electric service.
Additionally, filing for bankruptcy will likely mean that you will have to give up any valuable property beyond the home you live in and one personal vehicle. Creditors may have a right to take family heirlooms like jewelry, any valuable collections you have, or your second vehicle. If a close family member or friend served as a co-signer for you, then those debts would not disappear but instead would become their sole responsibility. This outcome would obviously be likely to ruin your relationship with this individual. These drawbacks should be carefully considered before considering bankruptcy.
What to Do
These are the most common forms of debt relief. Which one is best for you typically depends upon your situation. Is your debt still manageable? Could be paid off, if you won some concessions? Are things so far gone, you have no hope of ever catching up? Whatever it is, you’ll find relief in one of the solutions outlined above.
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