If you are looking for a way to manage your debt, then debt relief programs are great options. These programs help you to get back to a good financial standing. You will get a way to pay off your debts and get relief from all the stresses and worries. There are different debt relief programs available. You should be careful in choosing them because not all of them do what they promise. Before you get into this program, you should know the following things about it.
Debt relief program is a third party payment system
When you are in this program, you need to pay just one payment every month. It is the debt settlement company’s duty to distribute the money to all the creditors. A debt settlement company will help you to negotiate down the debt. You will have to pay 10% to 50% of the total debt eventually. The rest will be written off as bad debt. This program will not only pay off your debt on time but will also educate you regarding debt management.
Various types of debt relief programs
There are mainly five kinds of debt relief programs. You should have good knowledge of all these programs so that you can also decide yourself which would be the best option under specific circumstances. Here are some of the debt relief programs you should know about.
Debt consolidation loan
You can get debt relief by getting a debt consolidation loan. You can use this money to pay off your previous debts. You can choose from unsecured or secured loans. You can get loans with very low interests. You can also get home equity loan if you own a home. Before you apply for a loan you need to find out first whether your debt consolidation loan will help you to get debt relief. You should compare the average interest rates you are paying now and the interest rate you will be paying for your new debt consolidation loan. For example, if your current average interest rate is 17.5% and you get a personal loan at 9% interest rate then you will need to pay lower monthly interests.
If you have multiple high interest credit cards then you can transfer the balances of these cards to a new one that has lower interest rate. You will find many 0% balance transfer cards where you get up to 18 months’ interest-free period. In case you don’t get such card, you will need to compare the interest rate to see if it’s lower than that of your current ones.
Debt management plan
A consumer credit counseling agency can give you a good debt management plan. They can negotiate a lower amount of debt with your creditors. So, you actually end up paying less than what you owe. The disadvantage of this is that you might lose all your credit cards. You may just keep one card for emergency situations. With this plan, you will need to make only one fixed payment every month instead of paying varying amounts to multiple credit cards.
This is the last resort for debt relief. You need to hire an attorney for filing bankruptcy. With Chapter 7 Bankruptcy all your unsecured loans will be discharged which includes credit card loans, personal loans, payday loans, medical bills, etc. You will still have to pay the secured loans, like the mortgage or auto loan. The information about your bankruptcy will remain on your credit report for about 10 years. So, you won’t be able to take any more credits; even if you do so, the interest rate will be very high. Your credit score will also go down once you file a bankruptcy.
You should do some research before you choose which type of debt relief program you want to go for. It is better to seek an expert’s opinion regarding this matter.
Get counseling before thinking of loan consolidation
Loan consolidation is not the best option for everyone. You first need to work out whether or not you can pay your basic expenses. You should subtract your expenses from your income and see that you have enough cash in hand to pay off your debt. It is wise to visit a counselor who can assess your current condition and suggest you the best option. Another thing you should know about loan consolidation is that you will be only able to pay back your debt using consolidation loan if your loans are unsecured. For the best loans like tax debt or unpaid parking tickets, this is not a good option.
Debt relief program is hassle free
Debt relief programs are simple and efficient. You only need to pay one fixed payment every month until you pay off the entire debt. Once one of your creditors get the full payment, the other creditors will get larger payments and your debt will be paid out soon.
It affects your credit report
If your monthly payments are lower now than before then it can affect your credit score. The creditors will be able to find out that you are paying through a third party and they might not offer you further loans.
When you get into a debt relief program, it means that you won’t be able to use your credit cards unless you pay off the balance. You may keep one card for emergency purposes. You will need to make sure that you are able to pay the fixed amount every month until all your debts get cleared out. Instead of going to a counseling agency for debt relief program, you can take some steps yourself. You can request your creditors to reduce your interest rates. You should review your budget and see what expenses you can cut down so that you can save some money to pay more to your creditors. You should try to live your life with whatever you earn and stop using credit unless it’s absolutely necessary.