Debt relief

Debt relief is an option for reducing interest payments in order to secure that debtors continue to pay their debts without having to go into default.  Debt relief has been employed by foreign nations for over fifty years as a means of paying off international debts, and now those same techniques are being applied to help individuals that find themselves in unsustainable debt situations.

Ways of Achieving Debt Relief

Debt counseling is one way of achieving debt relief, which involves talking with a debt management counselor about options for reducing debt.  Often this involves negotiations with creditors to establish a debt management plan (DMP) for a consumer.

A DMP could help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by debt counselors, usually offer reduced payments, fees, and interest rates to the client. Debt counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.

The representative of the agency will analyze their client’s financial condition and help to make a budget and negotiate with creditors on a new repayment plan based on what is affordable. The representative will also ask creditors to forgive penalties, interest incurred, over limit charges, and late payments.

Loan Consolidation is a step individuals can take without the service of a counselor.  Loan consolidation is a process of taking several loans and combining them into one loan. This generally involves taking out a new loan to pay off a number of other loans, thus combining several debts into a single plan.  Most people who consolidate their loans usually do this either to attain a lower interest rate, or to have the simplicity of a single loan.  Usually, the new loan has better conditions and more benefits for the borrower than the old loans did.

Debt relief through loan consolidation

There are several ways to go about loan consolidation that are both secured and unsecured.   Loan consolidation does not instantly eradicate debt, and every option carries its own price tag.  Unsecured debt refers to debt that is not attached to an asset such as a house or a car this includes most student debt. Lenders offering unsecured loan consolidation have to rely on the borrower to repay them.  If the borrower does not repay the loan, the lender can charge fees but has no asset to seize in return. Therefore, interest rates on unsecured loans are generally high.

Secured debt is debt that is tied to, or secured by, an asset. If the borrower does not repay the loan, the lender can seize that asset as repayment. Therefore, secured debt usually has lower interest rates.  Examples of secured consolidation loans are home equity loans and car loans.

Credit card consolidation

When the majority of debt comes from credit cards, a good option for debt relief comes from credit card consolidation. Using such credit card debt relief programs, you can consolidate multiple credit card bills into a single payment each month. A debt relief company can work with creditors and help consolidate credit cards.

Bill consolidation

Often time’s debt relief is needed because of an unforeseen accident.  Falling behind on medical bills, utility payments and others, can add up to a large burden. Bill can be consolidated with credit card debt and personal loans so that a repayment plan can be tied directly to household income.  This debt relief strategy helps households keep up a good credit score while paying what they can afford.

Debt settlement

This is a program where a settlement company negotiates to reduce outstanding balances. Settlement is one way of getting credit card debt relief especially if you have too many cards and cannot make the minimum monthly installments.

Self repayment plan

This is an entirely self involved debt relief plan, which manages debts without the help of professional debt relief programs. This involves making a list of unpaid debts, prioritize them, and then preparing a budget to pay off bills and manage daily expenses efficiently.

Bankruptcy

Chapter 7 and Chapter 13 bankruptcy can be employed when none of the other debt relief plans or programs has managed to help. Bankruptcy is relief from debt through court intervention, and is generally employed as a last hope.  Bankruptcy ruins credit history and makes it difficult to qualify for loans and credit in the future.  It is best to avoid bankruptcy and try out the many other debt relief programs first.