When you’re facing a large amount of debt, it can feel like you don’t have many options. Due dates are fast approaching and you may even be getting collection calls that make it clear you need to repay your debt now. If you don’t have the money to pay right away, you may feel you’ve been backed into a corner.
Luckily, there are other options. Debt relief programs give you several ways to help deal with and reduce your existing debts. Here are three things you may not know about debt relief.
1. There are Many Forms of Debt Relief
One of the biggest things many people don’t realize about debt relief is that there are usually several options for reducing your debts. Technically, the term “debt relief” refers to any reorganization of your debt that provides you with a break from your debts. This might mean reducing the total amount you owe, lowering an interest rate, or renegotiating a loan to extend the term and give you more time to repay.
Most debt relief programs fall into one of four categories:
- Debt Consolidation: Debt consolidation may be one of the options you may not know of as a debt relief option. Debt consolidation often involves using a single loan to consolidate other debts and/or loans. Essentially, you take each of your existing individual debts and put them together into one larger debt. This might seem counterintuitive at first—if you’re already in debt, why would you want a new debt? However, debt consolidation allows you to streamline your debt payments to one creditor instead of multiple and may even lower your interest rates. Please note, this may not be an option for all consumers.
- Debt Settlement: The process of debt settlement involves a debt relief company negotiating with your creditors on your behalf to reach a legal agreement for the repayment of your debts. The process involves setting up a debt settlement account, which you typically pay into monthly, like an escrow account. Over time you build up funds in the debt settlement account. As the funds in the debt settlement account grow, the debt relief company negotiates settlements with your creditors. When you’ve reached your settlement amount, you can use the money in your debt settlement account to pay off each particular debt according to the settlement. Often debt settlement allows you to actually reduce the total amount you owe and can save you money compared to the original debt amount. Debt settlement agreements are often the preferred debt relief option for consumers with credit challenges.
- Credit Counseling: A credit counseling plan allows you to pay down your debts by using a debt relief company as the barrier between you and your creditors. Instead of paying your monthly payments to your creditors, you pay the money to your debt relief company. They will then pay your creditors on your behalf. The credit counseling company may have negotiated a concession on fees or interest with your creditors, but the principal amount of the debt is not usually reduced. Credit counseling may be a good option for consumers with less than $10,000 in outstanding unsecured debt. During your time in a credit counseling program, you are usually not allowed to take on more debt, which can help encourage you to be more disciplined with your finances and help avoid future debt.
- Bankruptcy: You have probably heard of bankruptcy before, and may even be considering it as an option for removing your debt. However, bankruptcy is usually a last resort effort to eliminate debts when you’ve exhausted all your other options. This is because certain types of bankruptcy allow your creditors to obtain some of the money you owe by liquidating your assets. If you declare bankruptcy, you may be able to get out of debt more quickly, stop collections, and help avoid foreclosure on your home or garnishment of your wages. However, it likely should be a last resort.
2. Debt Relief May Help Your Credit Score Long Term
As you probably know, carrying a heavy debt load can impact your credit score. In the short-term, debt relief programs may hurt your credit score as well. As you move around your credit to a consolidated loan or when working with a debt settlement program, the changes in handling these debts may have a short-term negative impact.
However, if you are unable to make your monthly payments or unsure how you’re going to pay off your debt, this short-term decline in your credit score may be worth it. One of the most important aspects to remember about debt relief is that it is a long-term solution to debt problems. Successfully completing a debt relief program should reduce your debt load and improve your financial health. Even if you see a short-term drop in your credit, addressing your debts with a debt relief program may ultimately lead to a higher score than if you consistently make late payments or don’t pay your debts at all.
3. A Debt Relief Company Can Become the Point-of-Contact For Your Creditors
Already receiving some collections calls? Those can be stressful. When you choose to better your financial health and help resolve your debt by enrolling in a program, you are partnering with a debt relief company. A debt relief company can take on the job of negotiating with creditors and contact them to let them know you’ve enrolled in a debt relief program. Their work contacting creditors on your behalf may help reduce or eliminate annoying collection calls because your creditors know you have a plan in place to pay them back.
Additionally, your debt relief team will step in to take the role as the point of contact regarding your debts. This means that if a creditor has a question about your payments or debts, they should speak to your debt relief team.
Get the Help You Need
You may still have questions about the things you may not know about debt relief. If you are having trouble paying your debts, speak with the debt relief experts at Accredited Debt Relief. We can help you tackle your debt issues with a debt relief program that’s customized to meet your unique financial situation. Get started today with a free no-obligation consultation.