If you’ve been struggling to pay down your debts, you’re not the only one. The truth is, you’re part of a recent growing trend. Today, the average American household has more than $15,000 in credit card debt, and the average student loan borrower owes more than $37,000. And these numbers are only rising.
So, what can you do to become debt-free sooner rather than later? One option is to get started with a debt resolution program. Debt resolution programs can help you more quickly reduce your debts, lower your monthly payments, and get creditors off your back.
If you’ve been thinking about getting started with a debt resolution program, there are a few things you should be aware of. In this article, we’ll give you an overview of debt resolution programs, how they work, and what to look for when getting started with one.
What is Debt Resolution?
To start, what exactly is debt resolution, anyway? Debt resolution is the process of negotiating with your creditors to pay off your debt for less than you currently owe. This can be accomplished either by working with a professional debt relief company such as Alleviate Financial, or by attempting to negotiate directly with your creditors yourself.
While paying less to your creditors does sound alluring, there are a few caveats to keep in mind if you’re strongly leaning toward the debt resolution route. First off, it’s key to understand that not all debts can be resolved. Debt relief options aren’t often available for accounts like student loans or back taxes, taking debt resolution off the table as an option.
Additionally, if your debts are eligible to be resolved, you should be aware that they could have a negative impact on your credit score in the short term.
The Most Common Types of American Consumer Debt
From undergraduate loans to unsecured debt, there are many types of consumer debt that people find themselves overwhelmed with. Here are five of the most common types of American consumer debt.
Home Equity Lines of Credit (HELOCs)
Unlike traditional home loans that charge simple interest, a Home Equity Line of Credit works more like a credit card. Of course, it’s also secured by your home, which adds another element of financial risk.
These revolving accounts can be borrowed against and paid off over the course of a variety of terms, from 10 to 30 years. One benefit of this debt is that it’s sometimes tax-deductible, helping offset the interest charges.
Credit Card Debt
Even more common than HELOCs, credit card debt is one of the largest contributors to financial hardship. There are a couple of reasons for this. First off, this revolving debt requires payment in full each month to avoid costly interest charges.
Moreover, if you do carry a balance over from one month to the next, you’ll be charged interest on the previous month’s interest charges that are now part of your balance. If this keeps happening every month, it can make it nearly impossible to escape this kind of debt.
Auto Loan Debt
New cars today cost more than ever. That means the majority of car purchasers wind up taking out an auto loan to buy their new or even used car. This debt is secured by the vehicle, which makes it impossible to include in a debt resolution program.
So, if you miss more than one monthly payment, the creditor will likely send someone to take the car back from you. The only way to get relief from this debt is taking out another loan to pay it off in full or sell the vehicle if it’s somehow worth more than the payoff balance.
Student Loan Debt
Unfortunately, not every student qualifies for a Pell Grant, which is money that doesn’t have to be repaid. For most students, Federal Student Loans are the primary method of payment. Today, it’s not uncommon for many students to graduate with student loan debt that’s in the six-figures.
Although this debt isn’t eligible for debt resolution programs, sometimes student loan pauses are possible. The downside is that sometimes, your interest still accrues while your payments are on pause.
For most people with a high total debt balance, mortgage debt is the largest single-secured debt. This massive monthly payment can make unplanned expenses tough to swing for many people struggling to get ahead financially.
However, because this debt is secured by your home, it’s not one of the eligible debts that can be negotiated down through debt resolution. The only way to lower your mortgage payment is through refinancing at better loan terms or paying the debt off entirely. One upside of a traditional mortgage compared to a HELOC is that the interest is usually fixed and paid down with each payment.
Causes of Major Debts
Both secured and unsecured debts can result in financial disaster if they’re not managed carefully. With banks handing out credit so easily, it can be tempting to make purchases that will leave you overextended. When the times are good with income, this might not be an issue. But if anything unexpected happens, like a major auto repair or home repair, the entire house of cards could come tumbling down.
The most common causes of major debt include financial habits, unexpected expenses, and medical procedures that result in bills that insurance won’t pay. For some folks, debt counseling could be a good place to start becoming debt free. But sometimes, these debt management plans don’t go far enough to alleviate financial stress. In these cases, debt resolution could be the better choice.
Finding Your Best Debt Relief Solution With Alleviate Financial
When you’re trying to weigh your options for getting relief from high payments and growing debt, it can feel confusing. There are so many options for debt relief plans that it can feel hard to know where to start.
If you think debt resolution might be right for your financial future, give the debt experts at Alleviate Financial a call today. We’ll give you a free debt analysis to determine which course of action will help you become debt free the fastest. Call today!