Debt Relief: How Does It Work?
Published February 03, 2022
Debt relief refers to reducing or refinance the debt to make it easier for the borrower to repay it. Consumers, firms all seek debt relief at times to avoid bankruptcy. All debt relief programs may have different processes but similar goals of helping people with their debts. Learn the process of debt relief in this article!
What is Debt Relief?
Debt relief is a group of strategies used to make debt handling easy. For instance, if you're struggling with several payments, you may need debt consolidation. Or if you may be interested in credit card debt relief to settle your credit card bills.
There are many other ways, such as management plans, debt settlement, and credit counseling. Some of the ways debt relief programs can work include:
- Reducing interest rates
- Changes to loan repayment terms
- Reduction in the amount owed
- Loan refinancing
All debt relief programs may have different processes but similar goals of helping people with their debts. Additionally, while comparing the debt-relief options, it is necessary to consider both good and bad results. So, in this article, we will provide you with some crucial information about debt relief that you must know before opting for any of the programs. Keep reading and learn more!
Top companies providing Debt relief consultation
If you feel overwhelmed with the debts, you can consult professionals. We have mentioned the top companies that provide various debt relief programs and a team of debt specialists to help you out. Have a look:
1. Guradian Debt Relief
- This New York-based company provides a free debt analysis.
- They offer various programs to get you debt-free in 24 to 48 months.
2. National Debt Relief
- They are a BBB accredited business with a rating of A+ with a host of many awards.
- They offer a National Debt Relief Program, in which their certified debt specialists work with the creditors to reduce the amount.
3. Debt Consolidation Care
- As the name suggests, they offer help through a debt consolidation plan .
- They have six different debt consolidation programs with free initial counseling.
4. American Debt Endersselief
- They have been in business for the last 15 years and provide maximum debt relief.
- They offer free credit consultation and different debt relief programs to make you debt-free in a maximum of 36 months.
- They have a nationwide experience of over 20 years.
- Offer a free credit restoration upon successful completion of debt relief.
When should you opt for debt relief?
Debt relief is not the right option for everyone. So, before digging into it, it's necessary to understand the situation when it's suitable. You can consider opting for debt relief assistance when:
- You're not able to pay your credit card bills and other loan payments.
- You tried to manage your payments and bills independently but couldn't get through.
- You've managed to pay your credit card bills, but other payments are left.
- You have contemplated bankruptcy.
To know more about the debt relief consultation, please click here.
Things you should know before applying for Debt Relief.
Debt relief programs indeed help you with your payments and debts, but it is also a decision that one should make carefully. Before you get to start with your debt relief program, we recommend considering these essential things:
The fees included
If you opt for debt relief services, there may be a fee included. For instance, in the debt management plan, you may need to pay a monthly enrollment fee. Moreover, with debt consolidation loans, there is a loan origination fee and prepayment penalty that must be taken care of. Lastly, if you seek help from a company, they'll charge 15% - 20% of the settled amount.
Check out for interests
Debt consolidation results in lower interest rates. Less interest means more monthly payments towards the principal, resulting in faster debt repayments. So, opt for a program that has more minor interests.
Beware of scams
While going for debt service, whether it is a debt management plan, credit counseling, or debt forgiveness, ensure the company's credibility.
Here are the red flags that you should watch out for:
- Asking for access to banking or personal information.
- Making promises that sound too good to be true.
- Lack of transparency in their services.
- Demanding additional charges or fees that too before offering services.
What are the different options for Debt Relief?
You can approach Debt Relief in different ways, depending on your circumstances and the type of interest rate you are paying.
Here we have mentioned the most common debt relief options available:
It stands for combining multiple debts into a single payment. You can choose this option if you are under several loans to repay. For instance, you can use a personal loan for debt consolidation by using multiple credit cards.
In such a case, you would need to open a credit card account, then transfer your balances to those cards. However, before investing in this option, we recommend that you understand its pros and cons thoroughly.
Debt Management Plans
This option is similar to debt consolidation. In this, you will choose your debts to add to the program. Then, you are required to make a single payment each month to the debt management plan. The payment that you make will then be transferred to your creditors.
This debt relief option doesn't require you to open a balance transfer credit card or an open balance account. Under the debt management plan, you may receive lower interest rates, but you need to pay the entire principal amount.
This option is considered as the last resort. If your creditor agrees to settle this debt, the remaining balances get canceled, and you pay less than what was owed.
You can do debt settlement by yourself, or companies are available that will negotiate the deal for you. If you choose to take help from a company, you may also be required to provide them with a fee. Additionally, keep in mind that this option can have income tax implications since the amount that has been forgiven is considered a taxable income by the department.
Is Debt Relief worth it?
If you feel that you are weighed down by your payments and bills, debt relief will be the light at the end of the tunnel. It can also prevent the possibility of filing bankruptcy. However, the most critical thing is to understand what you are seeking from debt relief and which program can help you in the best possible way. We recommend you consider the pointers mentioned above while choosing debt relief and make it worth it.
What does a debt relief company do?
A debt relief company helps people manage their debts through various strategies. This may include debt management plans, credit counseling, debt forgiveness, or settlement.
How can I cancel the debt relief?
If you seek help from a debt relief company, you should contact them to inquire about the cancellation program. Additionally, there's a possibility that you may need to pay a cancellation amount to get out of the contract.
What is a Debt Management Plan?
If you cannot regularly pay your credit card bills, you can opt for a debt management plan from a non-profit credit agency. This plan will group your credit card payments into one and cut your interest rate to create a 3 to the 5-year repayment plan.
Where can I report a debt collector for violation?
Is debt consolidation a good idea?
Debt consolidation is considered a good idea only if you get a lower interest rate. This helps you reduce your total debt to reorganize it and pay it off faster.