All you need to know about Debt Relief your options and consequences

Debt relief can be an important decision if you want to get out of debt burden. But what you ought to know is that this choice may not work for everyone. This article explains some useful options that you can consider:

When you have a huge number of debts from different lenders, debt relief can help change the loan terms and even the loan amount you owe. This will help you get your financial freedom back within a short period of time. 

Even so, get out of debt programs may not be the best solution for every person. It is therefore prudent to get more information about the program, including what the consequences might be before going for it. 

You can get debt relief in different ways;

  •       Filing for bankruptcy
  •       Getting better rates on the loans
  •       Increasing the payment term to lower your monthly payment
  •       Persuading your lenders to accept a lower amount than0 what you had initially agreed upon

In short, debt relief can be achieved through;

  •       Bankruptcy
  •       Debt management plan
  •       Debt settlement
  •       Do-it-yourself plan
If You Qualify For Debt Consolidation
Debt Relief

 

When debt relief is the best option

  •       When you are not in a position to pay back your unsecured debts (medical bills, credit card debt, personal loans for bad credit, etc.) within five years of owing the funds. Even if you cut down on your monthly payment expenses.
  •       When the total amount of these unsecured debts is half or more of your monthly income.

The drawbacks to debt relief program

Just like many other industries, the debt relief program also has scammers who can exploit you rather than bettering your financial situation. A lot of consumers who have tried to join the program fail to complete it. If you are not careful, you may even end up having more debt than you initially had.

But this also doesn’t mean that the program won’t work for everyone. Actually, a debt relief program can give you the breathing room that you really need to improve your financial condition. However, this can only happen if you understand and verify the following (very) important points before getting into the program. 

  •       The fees that need to be paid
  •       The credit counselor to be paid, and how much each of them should be paid.
  •       The tax implications

Debt relief through bankruptcy

Before getting into details, it is important that you only enter a debt relief plan if you can pay as agreed. You can even hire an attorney first before implementing any debt relief strategy. Most debt relief companies offer an initial consultation and you can only move to other options once you qualify. 

Bankruptcy is one of the common ways to get debt relief. Once you file for bankruptcy, all your credit card debts, medical bills and unsecured personal loans will be erased. The process can take between three and four months. Here are some of the things that you should know;

  •       Child support obligations and taxes owed won’t be erased. Even your student loan debt may not be written off.
  •       Your credit score can be affected. Bankruptcy entry can stay in your personal loans for bad credit reports for up to ten years. This is quite a long period of time since with a poor credit history, you won’t qualify for affordable consolidation of short term loans, get hired for certain jobs or even get an apartment lease.
  •       If you already have a poor credit score, filing for bankruptcy will enable you to rebuild your no credit check loans within a shorter period of time than trying to repay all your unsecured debts. 
  •       If you have applied for car loans with bad credit using a cosigner, filing for bankruptcy means that the cosigner will be responsible for all your debts.
  •       If your unsecured debts continue piling up, you won’t be allowed to file for another bankruptcy for eight years. 
  •       Filing for bankruptcy may not be the best option if you would have to give up property that you would wish to continue owning. The rules may vary from one state to another. Some property types are exempt from bankruptcy. These include cars up to a certain value and a certain percentage of equity in your home. Some of the things that you will have to give up include a truck or second car, vacation homes, family heirlooms and other collections of value.
  •       Bankruptcy shouldn’t be a priority if you are ‘judgment proof’. Being judgment proof means that you don’t have any property or income that your lenders and other credit counselor can go after. You can still be sued by the people you owe. However, they won’t be able to collect this debt.
  •       Also, it is not every person with huge amounts of debts that can qualify for bankruptcy. If your income is above the median amount laid down by your state, or there is a home that you want to save from foreclosure, then you may be required to file for chapter 13 bankruptcy. This is a court-approved repayment plan that can last between three and five years. Once you stick to the plan to the end, you will be discharged from the outstanding unsecured debts. Chapter 13 bankruptcy usually stays in a consumer no credit check loans report credit repair counseling agency for a period of 7 years after which it is removed.

Relief through a debt management plan

With a debt management plan, you will be required to fully pay all your unsecured credit card debts. However, all the fees will be waived and you will also pay the debt at a reduced interest rate. You are allowed to make one monthly payments to a credit repair counseling agency.

The agency will then distribute the payment to all your creditors. With this option, the credit card companies and credit card debt counseling agency normally agree to help clients who sign up for debt management plans. 

How to be qualified for a debt loan?

If you qualify for the plan, all your credit card debt accounts will be closed, and you won’t be allowed to apply for a credit card till the end of the plan. (A lot of consumers do not complete these plans).

Debt management plans do not affect your credit score in any way. But closing your credit card accounts will negatively affect your fico scores. You can apply for a new credit card once you are through with the plan.

Missing out on a single payment will disqualify you from the plan. If you decide that a debt management plan is the best option for you, ensure that you work with an agency accredited by the Financial Counseling Association of America or the National Foundation for credit counseling agency. It is equally important to be aware of the fees associated with the plan. 

When you should combine your loans
When you should combine your loans

What is Relief through debt settlement?

Debt settlement may not be the best option for most people. You can actually consider bankruptcy as a better alternative. Debt settlement should be a last resort for people who have an overwhelming amount of debt but do not qualify for bankruptcy. 

If you go with debt settlement, the company will want you to stop all your payments to the creditors. Instead, you will be required to deposit the funds in an account that these companies can control. The creditors are then approached one at a time as the money in this account continues to accumulate.

But note that the debts you have will also be accumulating on the other end. If this happens, the creditors may be forced to believe that they can’t get anything at all. They can then take a smaller offer (which is usually paid in a lump sum) and agree to write off the remaining debt. 

What if I failed to repay my loan?

Failure to repay your debts can lead to penalty charges and collection calls. Some creditors can also decide to take legal action. This can still happen even when you are on the debt settlement program (the program does not stop any of these). The debt settlement offer can begin within 4 to 6 months. The process can take several months, or even years depending on the amount of money you owe.

You can also decide to settle your debts without necessarily getting help from a debt settlement company. This is because the debt settlement industry is also full of bad actors. This is the reason why the National Consumer Caw center, the Consumer Financial Protection Bureau and the Federal Trade Commission cautions consumers against these companies. 

Some debt settlement companies can also refer themselves as debt consolidation companies. But they are not. Debt consolidation is a step that you can decide to take on your own, and it won’t affect your credit score. 

How to Do-it-yourself debt relief?

Now that you already have an idea of how the above plans work, it can even be better if you borrow some tips from them and come up with your own plan. For instance, you can follow what the counselors do when it comes to debt management.

That is to contact all your creditors and give the reasons why you failed to make the payments and the strategies you intend to implement in order to catch up. There are also some bad credit home loans companies with hardship programs and can agree to waive the fees or lower the interest rates.

You can do more research about debt management on your own and even contact your creditors to negotiate an agreement. If the debts aren’t overwhelming, you can consider a more traditional debt payoff strategy. For instance, if you still have a good credit score, you can consider applying for a credit card with a 0% balance transfer. You can also apply for a debt consolidation loan which will mean lower interest for you.

 Both the options won’t affect your fico score. And so long as you continue making the payments on time, your credit score will even improve further.

If you go for a 0% balance transfer credit card, try as much as possible to avoid accumulating credit card debt. It can also be challenging to get approved for short term loans or credit card when you have several unpaid debts. This is because most lenders and credit card issuers will perceive you as a person who is likely to keep high balances or to miss payments. 

What Are the Things to avoid?

There are many factors that can cause an accumulation of debts. Whether it is unemployment, a medical crisis or natural disaster, your lenders and creditors will most likely be on your neck. So if you are already in this situation, here are the things that you can do:

  •       Start by paying secured debts (like a mortgage or title loan for instance) before paying the unsecured debts since failure to repay a secured debt on time means that you may lose the asset used as collateral for the loan.
  •       Do not take out a loan against your home equity. If so, you will be putting your home at risk
  •       Do not pay your unsecured debts with money drawn from your retirement savings. This is more like financial suicide.
  •       Do not rush into borrowing funds from your workplace retirement account. If you happen to lose the job, these consolidation loans can become inadvertent withdrawals, which means that they can trigger a tax bill. And this may be the last thing you would want at the moment.
  •       Do not pay your debts depending on the creditors who give you too much pressure. Rather, spend some time to evaluate your options to determine which one works best for your case.