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Debt Relief: Understand Your Options

Debt Relief: Understand Your Options

Debt relief programs are very effective avenues for paying off large debts conveniently and getting them off your back fast. There are many credit card debt relief options you may consider once you make up your mind to seek debt help. Before you settle on one, it’s only prudent that you take some time to study the options, understand them and then make an informed decision. Not all the debt relief options may be relevant to your credit situation considering reasons like urgency, credit score, affordability of service and time taken to sanction the option among other considerations.

Whichever option you think will help you get out of debt, be sure to do some background check on your service provider. There are many debt relief service providers, some of them are crooked and may want to lure you into another debt trap instead of helping your get debt free. Also, make sure that the options you are considering are legal; in line with the State and Federal laws. On this post, I share with you some well-researched debt relief options which will effectively help you get out of debt.

  1. Continue paying the minimum payments

When you keep paying the minimum monthly payments, you are safe. You are safe because you will stay afloat and your loan will not attract any late payment fines. It also keeps your credit score and credit history good because as long as you are on track with the minimum payments no creditor will file a report with credit bureaus.

The problem with this option is that most loans are structured such that if you keep paying only the minimum monthly payments, the loan will build up fast and in a few months your minimum payment will be servicing the interest on the loan and not the loan in itself. If you’re not keen, this option may only sink you deeper into debt. The creditors love it that way because they’ll be making a huge profit on your loan. And in the end it does more harm to both your credit score and your credit situation than you may imagine. You’ll be paying the debt but your balance will be increasing instead of decreasing.

  1. File for bankruptcy

If you feel that your financial situation has had its toll on you and there’s nothing much you can do to keep servicing your loan debts, you may consider filing bankruptcy. However, this option has consequences. If you file bankruptcy to escape paying loan debts, the decision will haunt you for years. First, it will adversely affect your credit score so bad that creditors will view you as a bad debtor. Hardly will your loan requests be approved after you file bankruptcy. Second, when you get back to your feet financially, the creditors will be back on your tracks pursuing you to pay off your debts.

There are two types of bankruptcy in the U.S, Chapter 7 and Chapter 13. The former is appropriate if you can prove that you have zero disposable income to channel towards paying off your debts and the latter is appropriate if you can prove that you can’t pay off a portion of your debt.

Either way, filing bankruptcy doesn’t let you off the creditors’ hook; well it does for some time but in the end you’ll still have to pay off your debts when you get back on your feet financially.

  1. Debt Management Programs

These are also referred to as debt management plans. They are carefully devised programs, usually developed by financial planners to help you stay on track with your debt loan payment so that you avoid filing bankruptcy or falling behind on your minimum monthly payments.
Many debt management plans are sponsored by creditors and financial counselors to help their clients stay afloat or as a measure to prevent debtors from defaulting on their loans. So when you start to feel like you are having trouble keeping up with the minimum payments, talk to your creditors, explain to them your situation and request them to put you on a debt management program that’s appropriate for you. They could get rid of your late payment fee, lower interest rates on your loans or put you on an extended payment plan.

  1. Debt Negotiation

This is basically what loan consolidation companies do but you can attempt to do it on your own. It’s also referred to as debt settlement, credit settlement or debt forgiveness. However difficult, you stand a chance. With this option, you will approach your creditor and plead with them to change the terms of your loan. You must appeal to their emotions and convince them to consider the difficulty you have with paying back the loan normally. Creditors have different terms for debts negotiation; some will relieve you of late payment fees only, some will lower the interest rate considerably while others will give you limited time pay off the principal, it varies with the creditors’ policies on debt negotiation. It also depends on the nature of your debts, the State you live in, your income and age among other factors.

So which is the best option?

Well, the best option is to always pay off your debt as per the terms agreed on with the creditor. If you want to pay them off fast, be sure to pay a little more than the minimum monthly payments. If it’s breaking your back, consider loan consolidation companies. They will consolidate your loans so that you only remit a single monthly payment with low interest rate towards the settlement of the consolidated debts.

For more information on options for credit relief, please feel free to get in touch with us.

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