Your Debt Relief Options
You have many choices when it comes to debt management. Below you will find a description of the most popular options and a breakdown of the benefits and risks associated with each. Credit counseling involves assisting financially distressed individuals with managing their debt through education programs and budgeting tools. Enrollees are often placed into Debt Management Plans managed by credit counseling agencies which distribute payments on the debtor's behalf. Many of these programs are free however there may be fees depending on the services provided.
Benefits
- Consolidates payment
- Can lower interest rate
Risks
- Does not reduce debt
- Loss of credit cards
Debt consolidation programs combine the balances of several loans into one new loan with a new lender at a single interest rate. Qualifying for a consolidation loan can require higher borrower credit scores and oftentimes lenders will ask for loan collateral, such as your home or personal possessions, in exchange for taking on the risk. If no collateral is available a borrower may not qualify or may take on a higher interest rate.
Benefits
- Single monthly payment
- May lower interest rate
- Reduced credit impact
Risks
- Does not reduce debt
- Credit/collateral requirement
- Not great for large debts
Debt settlement is one of the most popular debt relief strategies available today, and is what we specialize in at Alleviate. In a debt settlement program an enrollee makes monthly deposits into a trust account. As these funds accumulate the debt settlement firm negotiates settlements with your creditors which are often significantly less than the balance owed. Each debt is systematically targeted until the client is debt free.
Benefits
- Affordable monthly payment
- Significant long-term savings
- Faster than minimum payment
Risks
- Some accounts may not qualify
- Must be in financial hardship
- Creditor lawsuits and calls
Bankruptcy is arguably the most drastic of all the debt relief strategies available to consumers. The United States bankruptcy process effectively allows debtors to get a "fresh start" by legally declaring themselves unable to repay outstanding debts and liquidating some assets to satisfy creditors. Chapter 7 and 13 are the most common types of bankruptcy used by individuals, however any form of bankruptcy will have a long lasting derogatory effect on creditworthiness.
Benefits
- Fastest strategy available
- Limits creditor actions
- Most debts can be discharged
Risks
- Long-lasting credit damage
- Loss of credit cards
- Liquidation of assets
Minimum payments is the most conservative option available to modern debtors. When making minimum payments on debt a borrower is maximizing the profits paid to the creditor. A minimum payment strategy is only recommended as temporary measure to get through a tough financial stretch as the total debt is reduced at the slowest possible rate. Debtors who routinely find themselves making minimum payments should seek another debt relief option.
Benefits
- No creditor calls
- Lower credit impact
- No late fees
Risks
- Long payoff time
- High interest payments
- No loan value reduction
