You’ve decided on debt relief as a financial strategy to help you emerge from what has become a suffocating situation. There are, however, multiple ways to use the approach. So, what’s the best form of debt relief? Well, it depends on your circumstances. Let’s look closer.
What is Debt Relief?
It’s a way to decrease or erase credit card debt. It can be done through negotiated lower rates, refinanced homes, or even a budget that can keep you on the right track.
These services are usually offered for free – or a small fee — by nonprofit organizations. With this approach, certified counselors help you gain the skills to lower your debt and handle a doable budget, which they’ll help you create. They often offer financial literature and other resources such as workshops. Overall, credit counseling offers a clear-eyed view of your financial situation as well as available options.
Make sure you do your research or ask for referrals from family or friends, so that you get a reputable agency that will likely be a good fit. You’re also going to need patience and persistence; don’t drop out, as too many do.
Debt Management Plan
If your situation will take more than a new budget, your credit counselors may suggest a debt management plan, commonly known as a DMP. The aim is to erase debt via lowered interest rates and fees, while yielding a decreased monthly payment. With this solution, you pledge to repay the total amount due over time.
How it works is, you make a singly monthly payment on your consolidated obligations, streamlining your finances. The program does take three to five years, though, and there are fees. Also, if you leave the program, your rate will increase, and you may have to make late payments.
Here, you can get credit relief by hiring a debt settlement company such as Freedom Debt Relief to go to your creditors to see whether they’ll let you pay just a portion of what you owe to settle each of your unsecured debts. Creditors usually agree to negotiate since they understand that if you file bankruptcy – your likely next step – they stand a good chance of getting zero.
Rather than pay your creditors directly, you’ll deposit funds monthly into a savings-type account that you control. Once each settlement is reached — and you sign off on it – the creditor is paid from your account, which will be marked as “settled” on your credit report.
With this strategy, you roll your unsecured debts – monthly credit cards – into a single payment, hopefully at a reduced rate. This makes bill paying easier, since rather than having multiple bills to deal with of various amounts and due dates, you have just one bill to concern yourself with.
The key is to get a loan that has an interest rate that’s lower than what you’re paying in the aggregate on your current debt. Otherwise, the strategy doesn’t make sense. You’ll need good credit to get a good rate, however.
You can consolidate your debt using a personal loan or a 0%-interest balance transfer card. With the latter, you shift your high-interest credit debt onto the new card. The proviso is that you must pay the transfer card off before the promotional period ends and your interest rate goes back up.
So, what’s the best form of debt relief? It does depend on your case. However, the good news is that you have several options. Choose carefully and get going.