Debt Relief Programs: Choosing the Right Debt Solution
With bills mounting in the mail, phone calls clamoring in, and reminders of debts paralyzing you with fear, a way out of debt seems close to impossible. Yet with good planning and even better research, you can pay off your debts and still have space to breathe. The key is to have the right tools.
So how do you pull this off? Obviously the amount of your debt will have a big impact. But regardless of the amount, there are certain steps you can take to simplify and eliminate your debt.
Dealing with Debts on Your Own
For many people, settling debts personally might be doable. The key is to realize it will take hard work, research, and dedication. There are many debt relief books, kits, and other self-help tools available for those who are interested in tackling debt on their own.
In some ways, this will be like revisiting the classroom. The difference is that this time your teacher can charge interest on any homework you don’t complete. If homework posed a problem in high school or college, you’ll want to get some outside help.
There is no shame in being unable to settle debts on your own. Finances are so close to a person’s life that it can be hard to view them objectively. But if you have the drive, get a book or two and buckle down.
Debt Stacking
Debt stacking, sometimes called snowballing, is a specific method of personally dealing with debt. As with all attempts to settle debt on your own, it requires strict discipline.
Paying off debts in this way involves paying extra each month toward the principal of the smaller debts first, slowly eliminating these to eventually tackle and eliminate the larger debts. This lowers your overall interest payments as it goes along, of course, but requires being able to free up the cash to make those extra initial payments.
Consumer Credit Counseling
If you don’t have the assets to put up for a consolidated loan, you should turn to consumer credit counseling. If you face large debts or high interest rates, such as a mortgage or credit card debt, respectively, credit counselors can create valuable plans.
Before selecting a consumer credit counselor, however, be sure to do your homework. Legitimate companies that offer credit counseling will often provide free debt analysis because their success is based on helping clients with debt, not on conning them out of cash up front.
As with any debt management option (besides personally eliminating debt) there will be associated fees. Credit counselors charge for their services, even if the businesses themselves are not-for-profit.
Debt Consolidation
Debt consolidation is an umbrella term that covers a broad range of debt relief options. When most people think of debt relief, they are thinking of debt consolidation.
Debt consolidation does not actually combine all of your debts into a single, unified payment. Though the name implies that, debt consolidation actually involves taking out a personal loan and using it to immediately pay off the principals on your outstanding debts. If you go through a debt consolidation company, they negotiate for lower terms, pay off the debts, and then turn to you for repayment. You will still be in debt to someone. The numbers, not the debts, have been consolidated into one debt for you to deal with.
Now, if you can get a bank to grant you a personal loan - say, a home equity line of credit, for example - you can create your own debt consolidation. Debt consolidation companies, however, are a valid option for seeing this through. Because they specialize in making loans to individuals in debt, they may be more forgiving of a spotty credit history than your financial institution.
Be sure to find a reputable debt consolidation firm before taking this step. Aim to use a nonprofit and then consult the Better Business Bureau rankings of any firm you would consider to help you consolidate your debt.
Debt Settlement
One option that may reduce your debts to an amount you can actually manage to pay is through debt settlement. In debt settlement, your debts can be lowered from astronomical figures to something more manageable.
This process does not come without a price. Debt settlement should be taken only as a last resort before declaring bankruptcy.
Your Bargaining Chips
The first step in debt settlement is to determine just how much you pay toward your debts each month. That figure will be one of your main bargaining chips. The other, as noted, is that this is your last resort before you have to declare bankruptcy.
Whether you do the settling with the companies yourself or you bring in a third-party advocate, the goal is to actually lower the total payments, or at least the associated interest rates. You or your advocate will call up your creditors with your two main bargaining chips in hand. These facts can be used to negotiate lower interest rates or even partial debt forgiveness.
If it has come to debt settlement, your creditors know that they are one wrong step away from not being able to collect from you at all.
Debt Settlement Disadvantages
Even with debt settlement, do not expect that your debts will be paid off in a matter of years or months. In reality, you may still be looking at a decade-long period to pay off your debts. While this is not so much a disadvantage as a hard fact, you should realize there will be no quick and easy fix at this stage.
Part of this comes in the actual disadvantages of debt settlement. Debt settlement does not come without a cost to your credit score and you, since it requires you to effectively stop paying your bills until your credit score is destroyed.
There is also a risk of lawsuits from your creditors that can garnish your wages due to missed payments. And using debt settlement will not get you out of debt any faster; it will still take many years to overcome your debt.
The Last Word on Debt Relief Programs
Ultimately, the last word is had by you. Your situation dictates what program you need. Be aware enough to realize when your own efforts aren’t working, and be willing to ask for help when you need it.
Depending on your situation, you might be able to find help through family members or charitable organizations. If your own efforts and those of people who care for you are starting to fail, though, carefully evaluate the above options. Choosing the right debt solution means that your last word can be that you are free.
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