Debt Relief Options And How They Will Affect You

Five Best Debt Relief Options

Five primary debt relief options have been developed between nonprofit agencies, individuals, credit card companies, lending institutions, and the federal government. Each one of these debt relief options might have some benefit, although each of them have serious consequences as well. The demand for options for debt relief has skyrocketed over the past several years. This is due in part to the poor economy, the sudden drop in housing prices, and staggering rates of unemployment.

Pay the Minimum Monthly Balance

1. One of the debt relief options that is common is to make the minimum payments on credit debt. This is a straightforward pattern that many people fall into when they get behind on credit card debt. They keep paying the minimum payment to meet their financial obligations. Unfortunately, this only works out well in the end for the credit card company. Because what actually happens is that you’re in a perpetual cycle of paying the minimum balance, while the credit card company earns money on the interest rate. What is the benefit of just making a minimum payment? If you keep paying the minimum payment due you will not be hit by big late fees, and the high interest rate increases that credit card companies will charge you with.

However, you are going to be paying back a huge amount of extra interest payments in order to pay your balance off over time. If you want to be stuck in on the debt treadmill then keep making only the minimum payments without paying down the principal balance.

Debt Settlement

2. A second of the debt relief options involves debt settlement. In its best sense, debt settlement involves eliminating your debt through working with a legitimate debt settlement company. This process involves negotiating with your creditors through the debt settlement company to reduce your liabilities with the lender. The benefit to a creditor is that they get some money back from you rather than nothing at all. The benefit to you obviously is that you get out from under this debt quicker than you would otherwise.

The caveat is that you must identify a debt settlement company that is legitimate, professional, and above board. Often you can get a settlement that is between 40 to 80% of the amount of the debt you originally owed. The average length of time to be in the payment process typically ranges from 12 to 36 months.

Home Equity Line of Credit

3. The third option for consumers who have some type of property is the home equity line of credit or a home equity loan. The issue here is that you need to have equity built up in your home and that the value of your home has remained steady despite the recent downturn in housing prices.

Remember that there are risks associated with taking out a home equity loan as a debt relief option. If you have no financial discipline, if all of your debt is unsecured, and if you have not been good about sticking to a budget and eliminating all but necessities from your budget, then this may not be the best option for you. This is because if you take out a loan that’s been secured against your home and you are not faithful about paying it off, but simply increase your credit card debt again, home will be at risk. In the worst-case scenario your home could be foreclosed on by your lenders.

Credit Counseling

4. Credit counseling is another of the debt relief options for you to consider. You would enroll in a debt counseling program which require you to make a payment directly to the counseling agency. This payment would be a consolidated amount of money that would cover your debt. The credit counseling agency will distribute this to each of your lenders every month. It is often a moral long-term program, typically ranging from 3 to 7 years. The primary goal is to reduce your interest rate, and to stretch out your payments over time so that they are more manageable. In addition, you are making one payment per month rather than several payments to different creditors.

You have to bear in mind the fact that you would have to close all of your credit accounts in order to make this work. This means that it could be difficult for you to get credit if you are in a bind and suddenly need to borrow money for an emergency. However, because of the fact that it is a managed program and once you make your payment you are out of the equation, it tends to work for many people.

Bankruptcy as the Last of the Debt Relief Options

5. Finally, there is bankruptcy. This is obviously not one of the debt relief options that should be entered into lightly and without considerable thought. You should also consult with experts, including your attorney. Obviously, your credit report is going to be hard hit if you declare bankruptcy and you will not be able to get credit for at least several years. This means you will be unable to borrow money for a car, a home, or even for an education.

However, you are out from under your debt for good. No longer can the creditors pursue you with collection calls or make veiled threats against you. Therefore, if you do think you are at the point where they will be serious ramifications if you don’t make a payment and you have no money left, then perhaps bankruptcy is worth consideration. However, you should have exhausted all the other debt relief options by that time.

Have You Chosen From the Debt Relief Options?

These debt relief options will help you to get rid of your debt over time. Just choose wisely and be fully informed and then take action on one of the debt relief options!