Debt resolution strategies can help you get out of debt, no matter how severe your situation is. A financial adviser who specializes in debt relief services will help you determine which strategy has the most benefits for you.
There are five debt relief strategies:
- Debt consolidation/balance transfer credit cards
- Debt/credit counseling
- Debt management programs (DMP)
- Debt settlement
- Debt forgiveness
Why Do You Need To Find The Right Debt Relief Option?
A debt relief solution has to fit your financial life, but you must absolutely commit to the program. If you give up because it’s too difficult or you aren’t seeing the results you expected, you could make the situation worse and owe even more money than before.
Talk to your debt or credit counselor if you’re unhappy with your debt resolution program. Together, you can find a way to make it work for you.
Find the Best Relief Program
The program that’s best for you depends on the type and severity of your debt. For example, if you need to nip rising debt in the bud and your credit score is still relatively healthy, then debt consolidation, through a loan or balance transfer account might be the answer.
You pay less interest by consolidating your debt into one loan or account. In fact, some balance transfer accounts have a zero-interest introductory period. Try to pay off the balance as quickly as possible because when the period ends, you will be charged interest.
If your situation is dire—for example, if you’ve fallen behind on some of your monthly debt payments—you should consult a professional credit or debt counselor. They’ll help you devise a structured debt management plan to appease your creditors.
What Debt Qualifies For Debt Relief Programs?
Debt relief companies typically work with specific types of debt, and it can be tricky to find a company that works with secured loans, which include large, expensive assets that require collateral, like mortgages and auto loans.
It’s far easier to find debt relief programs for unsecured debt, which includes credit card debt, medical debt, and personal loans.
Some types of debt provide no leeway at all. You must pay the full amount on time or face stiff penalties. Examples include child support, alimony, and federal student loans. If you desperately need relief, you might qualify for a government program, for example, the Child Support Debt Reduction Program in California.
Can You Resolve Your Debt Through Credit Counseling?
The most important thing to know about credit counseling is that you have to do the work. Some counselors reach an arrangement with your creditors that lowers your monthly payments by increasing the repayment time period or reducing the interest rate.
However, the primary purpose is to teach you how to better manage your finances, and that includes how to settle the outstanding debt through a debt reduction plan.
In most cases, nonprofit organizations offer credit counseling as a free service. Credit counselors must be certified to provide their services. You can find certified credit counseling agencies through the National Foundation for Credit Counseling (NCFF) and the Financial Counseling Association of America (FCAA).
Credit counselors won’t promise to erase the debt, but they can help you clear it in 3-5 years.
How Credit Counseling Works
During a counseling session, the counselor analyzes your finances, including income, expenses, spending, debt, and savings, based on the documents you provided. The session includes an interview to determine your attitude toward money.
The goal is to identify problem areas and explain how they affect your budget and increase your debt. They then create a money management plan customized to your unique situation. The plan will likely require you to make sacrifices to free up money to pay your creditors.
For example, you might have to cancel your cable, wear warmer clothes rather than use the heating system, stop eating takeout, and find alternatives to expensive entertainment such as picnics instead of movies and game nights instead of dinner parties.
Your Credit Score
Following the plan can resolve most of your debt without long-term damage to your credit score. However, in the beginning, you can expect a temporary dip of around 20 points. A general increase of about 50 points might be able to offset it.
Should You Resort to a Debt Consolidation Loan?
If you choose debt consolidation, all your debts will be put together and paid either through a loan or a balance transfer credit card, so you only have one monthly payment.
One of the biggest benefits is a dramatically reduced interest rate, especially if you go the balance transfer route, where you pay zero percent interest. This makes it especially attractive if you have a lot of credit card debt with high-interest rates. You should take any opportunity that provides credit card debt relief.
Debt consolidation isn’t for everyone. It’s best for those whose credit score is recovering from the original debt or who have loans with high-interest rates. It takes discipline to make a consolidation loan worthwhile, so if you have unresolved money issues, it’s best to consult a credit counselor before you take action.
Is Debt Settlement a Faster Way to Leave Debt Behind?
A debt settlement company negotiates with your creditors to reduce the amount you have to pay. Look for debt settlement companies that are especially skilled at negotiation and quickly finalize arrangements. The longer it takes to reach an agreement, the bigger the hit to your credit score. In some instances, the negotiation period can take up to four years, but a skilled negotiator can reduce that dramatically.
Debt settlement programs are a good way to get rid of long-standing debt and large debts. A good negotiator can reduce the amount by as much as 50%.
However, there are risks, for example, you have to pay tax on forgiven or settled debt, and because you cease payment when negotiations begin, your debt continues to rack up late fees and interest.
There’s also the risk that creditors won’t agree to a settlement and might instead sue you for the outstanding balance. If you can’t pay, your wages will be garnished.
Debt Settlement as One of the Most Affordable Resolution Strategies
There is no doubt that debt settlement has risks, but when a debt settlement plan succeeds, it can result in enormous cost savings.
Alleviate Financial Solutions has a team of expert debt settlement specialists who will work out a plan that suits your financial situation. In this way, you can keep crossing debt off your list and reach financial freedom.
As one of the best Californian debt relief companies, we offer comprehensive debt settlement solutions. Contact us at 800-308-2935 at Alleviate Financial Solutions today!