Whether you’re drowning in credit card bills, medical bills or other debt, debt relief can help you get out of financial trouble. However, there are a few things to keep in mind before you sign up for any debt-relief program.
One of the first things you need to decide is what kind of debt relief you’re looking for. Generally, most programs focus on unsecured debt like credit cards and medical bills.
Credit Counseling
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Credit counseling is a debt relief option that involves meeting one-on-one with a counselor and reviewing your financial situation. The counselor uses this information to create a plan for debt elimination that is best for your needs.
The process begins with a consultation, which is typically conducted via phone or in person. You’ll need to bring along your pay stubs, recent credit card statements and other financial documents that can help your counselor get a clear picture of your income and expenses.
Your counselor may also ask to drp pull your credit report for additional details about your debts and any negative marks you have on your record. This is called a “soft” credit pull, and it won’t affect your credit score directly.
A legitimate credit counselor should tell you about all debt relief options and only suggest one that’s right for your situation. If you’re contacted by an agency that immediately pushes you towards a debt management plan or doesn’t discuss all options, look elsewhere.
Debt Consolidation
Debt consolidation combines several unsecured loans into one loan with a lower interest rate. It can be a good option when your debts are too complicated to manage, and you need a more streamlined payment process.
Some forms of debt consolidation also involve putting up collateral, such as your home or car. This puts your assets at risk and can cause you to fall behind on payments, which could result in a foreclosure or repossession of your property.
Credit card balance transfer offers are another type of debt consolidation. They can offer a lower interest rate, but they may come with fees and an extended payoff period.
While debt consolidation can help you save money on interest, it’s important to consider your overall financial goals before applying for any debt product. Consolidating your debt is only a good idea when you have disciplined spending habits and can afford the new monthly payment.
Debt Settlement
Debt settlement, also called debt negotiation or debt resolution, is a form of debt relief that involves negotiating with your creditors to settle a large amount of your debt. It is typically used to settle unsecured debt, including credit cards and outstanding medical bills.
Most debt settlement companies instruct you to stop making payments to your creditors and instead deposit money into a special savings account that they manage. They then approach your creditors as your representative and negotiate for a reduced debt balance to be paid out in a lump sum.
The debt settlement company then collects a fee from the creditor equal to 20-25% of the reduced amount.
This may be a good option for people with significant unsecured debt. However, it is not always the best choice for everyone and should be evaluated carefully. It can be a costly and time-consuming process, especially if you need to pay off multiple types of debt.
Bankruptcy
Bankruptcy is a legal option that lets you wipe out debts and start over. There are two types of bankruptcy, Chapter 7 and Chapter 13.
Both can help you get your finances in order while also putting a stop to calls from collection agencies. However, they have their pros and cons that should be considered before deciding on bankruptcy.
There are other debt relief options that may be better for you, including a debt consolidation loan or debt settlement. These alternatives are much less expensive and will do less damage to your credit rating than filing for bankruptcy.
The most important thing to remember is that you shouldn’t file for bankruptcy if you have any other way to pay off your debts. This is because bankruptcy can negatively impact your property, credit, and overall financial life.
