Debt Relief: Everything You Need to Know & What to Avoid
October 11, 2023
Are you unable to make progress with paying your debts, no matter how hard you try? If so, you may be falling victim to overwhelming debt.
Debt relief can ease your debt burden, but it is not right for everyone, and it is important to understand the consequences and how you can avoid scams while opting for debt relief. That’s why, in today’s article, we are here to give you complete information about debt relief that you must know before you make any decision. So stick with us!
Key takeaways
Debt relief refers to measures to refinance or reduce debt to make it easier for the borrower to repay.
Options for debt relief may involve forgiving a portion of the debt principal, reducing the interest rate, or consolidating multiple debts into a single, lower-interest loan.
Consumers, businesses, and even nations can seek debt relief in times of need to avoid bankruptcy.
What is debt relief?
Debt relief is the reorganization of the loan in any form or shape to provide the indebted party with a measure of relief, whether in whole or in part. Debt relief can take several forms: reducing the amount of outstanding principal (partially or completely), extending the loan’s term, or lowering the interest rate on overdue loans, among others.
Creditors may only be ready to consider debt relief measures when the repercussions of default on the debt by the indebted party or parties are perceived to be so severe that debt mitigation is a better alternative. Debt relief can be extended to any highly indebted party, from small businesses and individuals to large companies, municipalities, and even sovereign nations.
How does debt relief work?
Debt relief is a program or strategy that helps people reduce or eliminate their debt. Debt relief programs include options such as debt consolidation, negotiation with creditors, and bankruptcy.
In the event of an emergency, emergency debt relief is also possible, which provides a quick and temporary solution to help people deal with their debts. A debt relief program can offer a path to financial recovery for those struggling with overwhelming debt.
The steps for debt relief may vary depending on the specific program or approach being used, but in general, the following steps may be involved:
Evaluation: The first step is to evaluate your financial situation, including your expenses, income, debts, and assets, to determine which debt relief options are right for you.
Consultation: You can then speak with a financial counselor or debt relief specialist to discuss your options according to your situation and create a plan that works for you.
Negotiation: If you opt for a debt settlement or negotiation, the debt relief company will usually negotiate with your lenders to reduce the debt owed.
Payment: You may be required to pay the debt relief company, which will be used to pay off your debts or negotiate with your creditors.
Completion: Once your debts have been paid or resolved, you have completed the debt relief program.
It is important to note that not all debt relief programs are the same, and some may involve additional steps or different approaches.
Debt relief example
Debt relief is not reserved only for individual borrowers. Companies and even nations may need it. Jubilee 2000, for example, was a campaign in the 1990s by many nonprofits, Christian organizations, and others to free developing nations from their debt by the year 2000. The petition had more than 21 million signatories. Results included eliminating approximately $100 billion of loans from 35 countries and increasing awareness of the scale and nature of existing loans and the huge corruption behind lending and borrowing practices.
The government’s responsibility subsequently grew in this regard. The savings were used to reduce poverty and finance these nations’ health, education, and reconstruction programs.
What are the most used types of debt relief?
There are several types of debt relief, but generally, the most used within the relief program are based on credit counseling, debt consolidation, debt negotiation plans, bankruptcy, and debt relief loans. The main purpose of each of them is to help people find a viable path to eliminating debt.
Credit counseling
Credit counseling is a service provided by government agencies and nonprofit organizations in the United States, which aims to provide help to people who have financial problems, avoid bankruptcy, and, at the same time, improve their financial health.
To make this possible, a credit counselor will work with you to create a budget, establish a debt payment plan, and provide tools to manage your credit in the future. This credit counseling can often include tips and financial education to improve your credit score, which is useful for those who require help managing their finances.
Debt consolidation
Debt consolidation combines multiple debts into one debt with a lower interest rate. This practice is very common among those people who seek to simplify their debt payments and reduce their financial burden.
This can be done through a debt consolidation program offered by debt consolidation agencies, companies, or attorneys; these programs can vary in terms of fees, requirements, and debt consolidation methods.
Debt management plans
Debt management plans are programs that help people manage and pay their debts. These plans go hand in hand with debt management programs, which offer debtors various services, including negotiating lower interest rates, consolidating debts, and establishing a structured payment plan.
All this through a debt management program where debtors can work with financial experts to create a personalized plan that allows them to get out of debt effectively and realistically. These programs become useful for those with multiple debts and who are looking to make regular payments.
Debt settlement
Debt settlement is a process in which a borrower negotiates with his creditor to pay a smaller amount than what he owes; this is generally done in a single payment and is agreed upon after a negotiation between both parties. Debt settlement is an option to help debtors reduce their debts, although it can affect their credit score and sometimes require payment of taxes on the forgiven amount.
Bankruptcy
Bankruptcy is a legal process in which a person or company declares that it cannot pay its debts. Carrying out this process allows some debts to be eliminated or reduced, but it can also have negative long-term consequences.
In the United States, bankruptcy is regulated by the Federal Bankruptcy Law. Therefore, it is important to clarify that declaring bankruptcy has several consequences; for example, it can damage an individual’s credit rating, making it difficult for him to obtain future loans. On the other hand, it can have a negative impact on obtaining certain jobs or housing in the future.
That is why you should consider speaking with a bankruptcy attorney before taking any decision or action.
Credit cards with a balance transfer
Balance transfer credit cards are an alternative for people who want to combine their credit card debt into one account.
With these credit cards, you can move the remaining debt on one or more of your current credit cards to a new credit card with a low or even zero interest rate for a certain period of time. It is important to note that balance transfers may have fees, so making regular and timely payments is important to avoid damaging your credit score.
Condonation or forgiveness of debts
Debt forgiveness refers to the act of fully or partially forgiving a debt. It can occur through debt forgiveness programs that are offered by the government for certain types of debt, such as student debt forgiveness, in the same way it applies to credit card debt and bank loans.
These programs allow borrowers to reduce or eliminate their debt based on certain eligibility criteria. Following the procedures established by the creditor or the corresponding government program is necessary to request debt forgiveness.
On the other hand, there is also the debt consolidation program, which simplifies and reduces accumulated debt. Thanks to the existence of this type of program, it can help you reduce financial stress and avoid bankruptcy.
What should you know before applying for debt relief?
Debt relief programs can help you get out of your debt burden. But it is a decision that must be made carefully. It is not necessarily a perfect solution, and some important trade-offs may exist. Before you begin debt relief, we suggest three important things to consider.
1. Interest
Credit card debt reduction may be possible with the help of debt consolidation loans, lines of credit, and 0% balance transfer offers. But consider the cost involved. Ideally, debt consolidation results in a lower interest rate. A lower APR means more of your monthly payment goes toward principal, so you can pay off your debt faster. It also accrues less interest over its repayment period. If you’re interested in consolidating debt, consider the rates you may be eligible for based on your credit score. And, if you’re interested in something like a debt management plan, ask if a rate reduction is possible when establishing payment terms.
2. Rate
There may be fees linked with some debt relief options, and it is helpful to keep these in mind when deciding if the cost is worth it. For example, credit counselors may or may not charge a fee to aid you in creating a budget and a spending plan. You must be careful with loan origination fees and prepayment penalties with debt consolidation loans. You may pay a balance transfer fee using a 0% APR balance transfer credit card to consolidate debt. If you are interested in a debt management plan, you may need to pay a monthly fee to enroll. Companies that negotiate debt settlement may also charge a fee for their services, sometimes between 15% and 25% of the amount settled or forgiven. Since fees can add up to the total amount you need to repay, it’s important that you know what you’re paying upfront and how it can add up in the long run.
3. Scams
When you’re interested in debt relief services, whether credit counseling, a debt management plan, or debt forgiveness, it’s important to ensure your company is legitimate. Otherwise, you risk falling victim to a debt relief scam.
As reported by the Federal Trade Commission, Debt relief service scams target individuals burdened by significant credit card debt, falsely pledging to negotiate with creditors to lower their repayment obligations but often charging upfront fees and failing to deliver results. Auto loan modification scams make false promises to reduce car loan or lease payments to prevent repossession, while credit repair scams lure financially distressed consumers by falsely claiming they can remove negative credit information. The FTC has taken legal action against numerous fraudulent credit-related services, collaborating with states on hundreds of lawsuits and enacting rules to protect consumers, including a ban on upfront fees for debt settlement services and requirements for transparent disclosures and truthful representations. So, we highly advise you to stay protected from scams.
When comparing debt relief companies, be aware of the following red flags:
Demands for fees that must be paid before services can be offered.
Lack of transparency in explaining what the company does or provides.
Requests for access to personal or banking information.
Promises or guarantees that seem too good to be true.
Ahhh! Still confused about which debt relief company you should choose? Feeling scared that you might get scammed? Just sit and relax, as we have got you covered. We will tell you about the best Debt relief company that has helped hundreds of thousands of people get out of their debt burden: National Debt Relief.
Since 2009, National Debt Relief has been the largest debt relief company working to get people out of their debt burden. The most surprising thing is that National Debt Relief offers a free consultation so that you can find the right debt relief option for yourself. Furthermore, with National Debt Relief, you can get out of the burden of your debt within 24-48 months.
The company has many accreditations, which include:
A+ rating with the BBB
Over 21k five-star reviews
A team of debt arbitrators certified through the International Association of Professional Debt Arbitrators (IAPDA).
So, don’t look further and choose National Debt Relief company, as there are very high chances you might get scammed by other fake companies.
When should you and when should you not resort to debt relief?
Unfortunately, most people always have debt problems, but sometimes, they find no alternative to resorting to this program.
It is important to clarify that this is not always the case; we will give you some examples of when you should and when you should not resort to debt forgiveness:
You have no means to pay your unsecured debts (credit cards, medical debts, or other debts that do not have property as collateral).
You make monthly payments, but your balances are not decreasing due to high interest rates.
You have difficulty choosing between covering your monthly debt payments and meeting your needs.
You have been late or are about to be late paying your bills.
What to avoid?
Sometimes a debt becomes too stressful, and what everyone wants is to get rid of it as soon as possible, but you always have to treat these types of situations with care, so we share some tips on what you should avoid doing when having a debt:
Don’t neglect a secured debt (like a car payment) for an unsecured debt (like a credit card), as you could lose the collateral backing your debt, i.e., the car.
Don’t borrow against the equity in your home; you can put your home at risk of foreclosure.
Don’t withdraw money from your retirement savings.
Please note that some debt relief options have costs; first, consider the fees and the impact on your credit before signing up for any program or new financing.
How does debt relief affect your credit score?
Debt relief can affect your credit score in many ways. Some debt reduction options can affect your score both negatively and positively. Paying debts on time and reducing the balances on your open debt accounts will improve your scores.
Getting out of debt can be daunting, but options are available for those seeking help, from debt consolidation programs to credit counseling and debt settlement. It is important to always look for the option that best suits your financial situation and try to choose the program that relieves your debt.
Conclusion
After going through the complete article, I hope you have understood what debt relief is and how you can avoid scams by choosing a legitimate debt relief company – National Debt Relief. So, go and book your free consultation now with National Debt Relief and get expert advice according to your specific situation.
