Debt relief can take one of several forms; these include paying your bills (yes, we know this sounds obvious, but stick with us), consolidating your debt, credit counseling, debt settlement and bankruptcy protection. While each has its place, some of those solutions are better than others for certain situations.
Let’s take a look at each of these brilliant debt relief options.
Paying Your Bills
While it might seem like an impossibility if you’ve fallen behind, there’s a very real chance you can still do this. Create a list of everything you owe; include the balances, interest rates and minimum monthly payments. Keep track of your spending for 30 days to find ways to cut back on non-essential items (like that daily Starbucks stop) and create a plan for paying off all of your debts.
Truman Advisors Can Help With Debt Consolidation
If your credit rating is still strong, you might qualify for a debt consolidation loan. This will put your obligations into one basket (so to speak), enabling you to attack them all at once—and at a lower interest rate. Here, you have to be careful to ensure paying off the loan is both doable and more affordable than paying each of your obligations separately.
Generally operated by non-profit entities, credit counseling organizations help you take stock of your situation by reviewing your budget, evaluating your options and recommending a plan of action. Even better, the service is usually offered free of charge.
In many cases, credit counselors recommend debt management. This involves negotiating reduced interest rates and fees and working out a plan with your creditors to clear up all of your debts within three to five years. You’ll make payments into an account, which will be used to pay your bills for you.
However, you have to make sure you can live up to the plan, because you could wind up in a more problematic situation if you drop out. Further, as the name implies, credit counseling will help you address the root of your financial problems—your spending habits.
This is similar to credit counseling, in that lower interest rates and fees will be negotiated on your behalf. However, debt settlement goes one step farther and negotiates lower payoff amounts—in exchange for lump-sum payments. While this too is an effective method, you have to understand your credit score will take a pretty significant hit and you have to be careful to choose a company with a good reputation like the one touted in this Freedom Debt Relief review.
You’ll make deposits with debt settlement much like you do in credit counseling. However, instead of being used to pay your bills each month, the cash will accrue in an FDIC insured third party escrow account until there’s enough on hand to begin settling your debts. This process will continue until all of your settlement agreements have been satisfied. As a result, you will appear to be falling farther behind to your creditors, which can trigger collection calls and possibly even lawsuits. Some companies have relationships with law firms to help their clients in the event this happens. However it’s important to remember debt relief companies are not legal entities and cannot provide advice in that regard.
Capable of wiping out most forms of debt altogether, it also preserves your home, car (up to a certain value) and clothing. However, your credit score will be decimated and will remain depressed for a period of seven to 10 years. It’s also important to note student loans, alimony, child support and back taxes are exempt.
As you can see, some of these brilliant debt relief options are more wonderful than others. The best-case scenario here is reevaluating your spending habits and finding a way to pay what you owe. If that’s not doable, any of these other methods will serve the purpose—with their associated downsides.