When it comes to debt, many factors can impact your financial future. The payment terms of debt can be helpful when interest rates are low and payments are simple. Still, some types of debt have much higher rates and far more complex repayment schedules that can trap borrowers in a seemingly inescapable pattern of repaying their debts only to have to borrow again for necessities.
If you’re in debt that’s creating financial hardships for you, it’s crucial to understand the different types of debt. Even more important, knowing the various strategies for paying down each type of debt can save you thousands in interest and fees over the debt’s life. Some debts, like student loans, have no way of being wiped clean by filing for bankruptcy. Others have compounding interest structures that rapidly increase your balance. The first step to getting debt help is understanding how debt and debt settlements work. Let’s cover the differences between debt and how you can strengthen your financial position for the long term.
What are the various types of debt, and which repayment strategy is right for you?
If someone signs for a loan on a specific item like a car or a house, the debt is considered secured debt. The item being financed provides security to the bank to get their money back if the borrower defaults on the loan. Secured debt means the money you borrow is backed up by a physical good. It could be a boat, a car, an RV, or a house. At the beginning of the loan, a lien is placed on the property, granting the lender rights to repossess the item or foreclose on the property if you don’t pay the loan on time.
The opposite of secured debt is unsecured debt, meaning the debt isn’t backed up by anything other than your agreement to pay back the lender. If you don’t pay, the lender’s only recourse is taking legal action to collect payment for the loan, rather than repossession or foreclosure like with secured debt.
Examples of unsecured debt include credit cards, student loans, medical bills, payday loans, and personal loans without collateral. These types of debt don’t have a physical item that the bank can take back to recuperate their costs, so rates on this type of debt are typically much higher than on secured debt. Unsecured debt is usually the reason people find themselves needing debt help.
Revolving debt is another form of unsecured debt. With revolving debt, the balance can change as you use the account, for example, if you use a credit card to buy something at the store. Another example is a home equity line of credit, a secured form of debt backed up by property. This type of debt has a limit, and the percentage of that limit you use impacts your credit. The more debt utilization, the more negative impact on your credit score.
Non Revolving Debt
Most secured debt is considered non-revolving debt, such as a car loan. However, some non-revolving debt is unsecured, such as with student loans. With non-revolving debt, the loan amount is set at the beginning and doesn’t change, so it’s a one-time use deal. The minimum payment each month on this type of debt is set at the beginning, doesn’t change, and will pay off the balance in full at a date prescribed when the loan is made. Once the loan is paid off completely, that’s the end of the contract, unlike revolving debt that remains open indefinitely even with a zero balance.
Which debt repayment strategy is right for you?
So you’re struggling to get out of debt. Which debt repayment strategy is right for your financial situation? Should you seek bankruptcy, or is debt relief assistance a wiser choice? What are your options for debt relief?
Are there any government programs to help with debt?
First, let’s clear up any misconceptions about government programs to assist with debt problems. There isn’t any US government-sponsored debt-relief program to assist debtors. There aren’t any government debt settlements, debt consolidation, or grants to help people pay down their debt. The only government-related option for debt reduction is bankruptcy, and that comes with much worse long-term credit consequences if it even goes through. Help with debt is available, however, through debt relief companies like Alleviate Financial.
Can a debt be written off?
Sometimes creditors write off debt and sell it to collection agencies. So while the debt may no longer be owed to the original creditor, the debt still exists and may still be negatively impacting your credit. That said, if a creditor takes no action on past-due debts, eventually, the seven-year statute of limitations will pass, and the creditor can no longer seek legal action to collect on the debt. While this debt relief may save the most money, it costs you years of bad credit. Other forms of debt assistance can alleviate your debt faster and with less of an impact on your credit.
How do you get credit card debt forgiven?
The first step to getting credit card debt relief is to contact the credit card company or collection agency to negotiate a debt settlement payment. This may be one lump-sum payment or a series of payments to pay the debt off for a lower amount than the current balance. Keep in mind that once a debt becomes past due, many fees and extra interest get tacked on to the balance. Alleviate Financial helps people get credit card debt relief by assisting in the debt settlement process, potentially saving them thousands in fees and interest.
How does a debt relief program affect your credit?
Debt relief programs aren’t a magic fix. There will be a period of time while you’re going through the repayment process that your credit will be negatively affected. The good news is, once you’ve paid the debt off, you can start rebuilding a clean credit history by keeping debts low and paid on time, eventually leading to a boost in your credit score.
Whether you’re just trying to lower your monthly debt payments or you’re hoping to avoid filing for bankruptcy, debt relief is one solid option to alleviate your financial stress. Alleviate Financial has a team of debt assistance experts who are passionate about helping people like you get free from the weight of heavy debt. Reach out to us today and start taking back control of your financial future.