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The burden of debt is significant, contributing to everyday financial stress. It also prevents you from working toward major life goals and preparing for retirement. Credit card debt is notoriously challenging to pay off due to the high interest rates and revolving term. Student loans and medical debt are also problematic for many people. Whether you’re struggling with these types of debts or others, you may find a solution through debt relief.
What Is Debt Relief?
There are various forms of debt relief, and each has its pros and cons. Numerous debt relief companies will work with your creditors in various ways to adjust and manage your debt. Often these companies help you to pay off your debt faster. However, some of their techniques can damage your credit rating, and debt relief services are not free. Be aware that some of your creditors may not work with debt relief companies, and some may file a lawsuit against you for debt collection. Despite these potential downsides, eliminating your debt burden over a period of years can dramatically improve your life.
Forms of Debt Relief
There are several forms of debt relief that you can consider. Conduct independent research before moving forward with any plan.
Individual Plan: Rather than work with a debt relief company, you can create a plan on your own. This may include asking creditors directly to settle with you for an amount less than you owe. Some creditors may be willing to lower your interest rate or restructure your debt.
Debt Consolidation: Debt consolidation involves rolling several or all debts into one loan. Typically, car payments and home loans aren’t included. The new loan may be a debt consolidation loan, which is a personal loan with a fixed term. Some people also use a home equity loan or take advantage of a no-interest or low-interest credit card offer.
Credit Counseling: A credit counselor will help you better understand your income, expenses and debts. He or she will assist with creating a realistic budget and a practical debt management plan. The goal of credit counseling is to help you avoid bankruptcy.
Debt Settlement: Creditors typically prefer to accept some debt repayment rather than none. If you are facing financial hardship or are more than four months behind on payments, your creditors may agree to settle your account for less than you owe. The debt relief company will assist you with saving a lump sum of cash needed for negotiations and will work with your creditors.
Debt Management: A debt manager will work with you to credit a debt repayment plan. This plan may involve a combination of debt consolidation and settlement methods. In addition, a debt manager will assist you in creating a sound budget to help you avoid falling into debt again in the future
Bankruptcy: Depending on the type of bankruptcy you choose, this type of legal proceeding can eliminate your debt or structure debt payments over a set period of time. This process takes a few months typically. Like other debt relief methods, it can damage your credit scores. It can also impair your ability to obtain credit for up to seven years. In addition, the court may order you to lose assets in order to pay your creditors.
Other Ways to Relieve Your Financial Burden
You can also dramatically lower your lifestyle to free up money in your budget. Then, use the snowball payment method. With this method, you make the minimum payment on all accounts. Then, focus on the account with the smallest outstanding balance with any additional money available. When that account is paid off, you move to the account with the next smallest balance.
While paying off debt is never enjoyable, it can dramatically improve your life over the long term. Carefully research the options, and choose a method that aligns with your goals and needs.
