Drowning in debt can cause many individual discomforts. Notices from creditors and debt collectors can be unnerving. When you’re already struggling with a financial crisis, these extra issues can be a pain. But you aren’t without options. There are several credit relief options that can turn your situation around.
Among your options, there are non-profits and counselling services. Some of these options can be free. So, we’ll go over the benefits of credit relief and the places you can find it.
Credit Relief Options
Here are some credit relief options you can look into.
Debt Management Plans
Debt management companies can produce debt management plans for you. These companies work with credit card companies and other lenders to help come up with a relief plan for you.
These debt management plans might be able to you to pay off all your unsecured debts in full. These debts will usually come from credit cards but can come from loans as well. They debt management company will try to negotiate a better repayment plan and interest rate. You can sometimes even have some additional fees waived. In return, you’ll have to make monthly payments to your credit counselling agency. They will then distribute the money to your creditors.
Why Debt Management Plans Work
Creditors won’t be happy to accept less money from you in repayments. But they may accept a deal that saves you some money anyway. In the end, they would rather you pay them a reduced rate than pay them nothing at all.
The downside of debt management plans is that they will close down your credit accounts. You will most likely have to live without credit cards or additional loans for the duration of your plan. The other downside is that missing a single payment may lead to the end of your plan.
Debt Consolidation as a form of Credit Relief
Debt consolidation companies won’t make you to lose access to credit. But they come with their own risks.
Debt consolidation means you will be provided with a debt consolidation loan. The loan will be used to pay off all your other debts right away. You can often get a debt consolidation loan that causes you to pay less in interest.
There are several advantages to debt consolidation loans. First of all, they simplify your repayment process. You only need to pay one loan off. Second, you can save your credit score. Once you pay off all your other loans, you may even see a sudden, slight increase to your credit score.
Debt Settlement
Debt settlement plans are a dangerous idea. In many cases, you’re better off just declaring bankruptcy. That’s why we can only recommend debt settlement if you don’t even qualify for bankruptcy.
A debt settlement company will get you to stop paying your creditors back. They will get you to put the money you’d use into an account they manage instead. While you’re paying the settlement company, you will fall even further behind on payments to your creditor. Then, the settlement company will start approaching your creditors, offering lump-sum settlements. Out of the fear that they won’t get their money back, the creditors may accept these offers in exchange to leave you alone.
Debt Settlement Cons
There are many problems with debt settlement as a credit relief option. First of all, your credit score will suffer and you will be pressured by creditors to make payments while you wait. The debt settlement industry is also suspicious; many of these companies are dubious. You should consider other options before resorting to debt settlement.
Bankruptcy
Declaring bankruptcy will ruin your credit score for a decade, but it will relieve you of your debts. In fact, if you know you won’t be able to pay for any of the above options, bankruptcy is the better choice.
Chapter 7 liquidation is the most common form of personal bankruptcy. It will remove most of your credit card, medical, and personal loan debts. The only problem is that bankruptcy likely won’t remove any student loan debts.
The bankruptcy process takes about four months. After that, your credit score will be very low and you won’t be able to take on any significant debts. It’ll also stay on your credit report for a decade.
When You Should Consider Credit Relief Options
Sometimes you’re drowning in debt and it looks like it’ll be impossible to get out. But it’s still always better to look for the non-nuclear options first. Extreme measures like bankruptcy (and especially debt settlement) should never be taken lightly.
You know better than anyone else when you’re drowning in debt. When you simply can’t keep up, it’s time to look into your credit relief options. But be aware, while these are all feasible options, they will always make things worse before they make things better.
Warnings: What To Watch Out For
The credit relief options you have can all land you in trouble. So, the first thing you want to make sure of is that you’re working with a reputable company. Debt settlement is a particularly shady industry.
Always remember that when you’re drowning in debt and desperate, you’ll be a target for unscrupulous figures. So, before you make any agreements, determine:
- What you qualify for
- Extra costs and fees
- Credit score and tax implications
- Which creditors will be paid, and how much
