Even if extreme cuts to your spending don’t seem to help you get out of your credit card debt, not everything is lost. Debt relief & debt consolidation are among the options you have. Even more, they are arguably the very best ways out of debt for you!
What Is Debt Relief/Debt Consolidation?
Debt relief is the reorganization of debt in order to provide you – the indebted party – with opportunities to get out of unsecured debt (which a credit card debt is).
Primarily, debt relief is done via debt consolidation where several loans are joined into one large loan. A consolidated loan usually has low interest, an extended term, and it also allows you to pay all the fees to one creditor instead of several. With that, debt consolidation makes managing your loans very easy.
Aside from debt consolidation, debt relief may incorporate:
- Waiving some portion or the entire debt’s principal.
- Lowering the debt’s interest rate.
- Extending the term of the debt to reduce the amount of money you pay monthly.
Which one of these options your creditor will agree to depends on many factors, including but not limited to owed sums, whether or not the debt is backed up by collateral, and more.
Debt relief is only one among many available ways of coping with overwhelming debt . However, it is arguably the most optimal method of them all.
Debt relief could be used to waive or mitigate any kind of loan – not just credit card debt. Even entire nations have made use of debt relief – the Jubilee 2000 campaign, for example, resulted in the waiving of about $100 billion of debt from 35 countries !
How Does Debt Relief Work?
Debt relief most typically entails a debt relief plan – a course of action developed by a debt settlement or credit counseling company. A debt relief plan consists of the following key steps:
- Development of a savings plan. First off, debt relief service providers usually develop a money savings plan. According to this plan, you will deposit a small amount of money into a dedicated savings account each month. Among other things, the purpose of this savings account is to make a positive impression on your creditors.
- Debt renegotiation. Next, the debt relief company representative will get in touch with your creditors and renegotiate your debts.
- Debt payment. Finally, your new debt repayment schedule will be put into force. In fact, you will be making payments not to your creditors but to the debt relief company – the company will then do the rest. So aside from discounts, debt relief plans let you consolidate your debts.
Debt relief plans may somewhat differ from company to company, but you will figure it all out once you look into debt relief a little more.
Debt Relief VS Going Bankrupt – Which Is A Better Option?
If you are wondering how debt relief compares to going bankrupt, here is your answer:
- Bankruptcy will destroy your credit score and stay visible on your credit report for up to 10 years.
- If you have debts secured with collateral (secured debt), you will lose that property if you go bankrupt. But if you were to instead choose debt relief, you could potentially continue paying for secured debts and keep the collateral.
- You’ll still have to pay your student loans, alimonies, or tax debts.
Although there is much more to bankruptcy, these 3 points should give you a clear idea of why debt relief is the right choice in most cases. With that said, we strongly recommend that you research all available options and make a decision yourself.
What About Debt Settlement – How Does It Compare To Debt Relief?
Debt settlement is technically a form of debt relief, but the two types of debt refinancing are often viewed separately.
In debt settlement, you make a lump-sum payment to your creditor in exchange for forgiving outstanding debt. Debt may be forgiven partially or entirely, depending on how the settlement has been negotiated. To achieve a debt settlement, people typically address a debt settlement company.
The main downside of debt settlement is that debt settlement companies usually encourage customers to stop making payments to creditors . Given that debt settlement can last 2-3 years, that’s 24-36 months of late fees for you.
Not only that, but you will have to settle the debt with each of your creditors. Ultimately, debt settlement could put you in even deeper debt.
Debt relief doesn’t force you to accumulate huge late fees, which is a big advantage. Besides, the impact of debt relief on your credit score will be comparatively low.
Take Matters Into Your Own Hands
Debt relief requires commitment because you will still be required to make some payments to your creditors. However, in the long term, debt relief will be a much better choice than bankruptcy or debt settlement for many people.
Strongly consider looking into debt relief deeper and research all available options.
- “Coping with Debt”, the U.S. Federal Trade Commission, https://www.consumer.ftc.gov/articles/0150-coping-debt.
- “Debt Relief”, Investopedia, https://www.investopedia.com/terms/d/debt-relief.asp.
- “Debt Settlement vs Debt Consolidation”, Debt.org, https://www.debt.org/settlement/vs-consolidation/.