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Debt Relief Companies
So, what are consumers who need credit card debt relief supposed to do? Here is a look at what a debt relief company is and how they can get you out of debt.
No matter how it’s done, the best debt relief programs turn a lose-lose situation into a win-win – or at least partial-win, partial-win – for both sides of the agreement.
The borrower gets some relief in repaying a debt; the lender gets some or all of the money they’re owed.
And both sides promise this will never happen again.
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What Is Debt Relief?
Debt relief is when a borrower convinces a lender to reduce the amount of money owed (debt) to a level the borrower can afford to repay (relief).
Sometimes that means asking the lender to lower the interest rate and monthly payments.
Sometimes it means asking the lender to dramatically reduce the amount owed.
And sometimes it just means asking the lender to extend repayment terms another year or two.
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What Are My Debt Relief Options?
There are five debt relief programs that will save you from drowning in debt.
But first you must promise to be disciplined and committed to a process that could take 3-5 years.
The first three – debt consolidation, debt management and good ole’ DIY (do it yourself) – are challenging, but doable.
The other two – debt settlement and bankruptcy – are drastic and damaging, but also doable.
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1. Debt consolidation.
This typically involves taking out one loan from a bank or credit union, paying off all credit card debt, then repaying the bank or credit union in monthly installments. It also can be done with a zero-interest balance transfer to another credit card. It is a way to simplify the bill-paying process by reducing payments and having to keep up with payment dates.
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2. Debt management program.
A nonprofit credit counseling agency will work with your creditors to lower interest rates and monthly payments to a level you can afford. If you are consistent with payments for 3-5 years, this might be the easiest route to financial freedom. It can improve your credit score and teach you how to budget effectively. Miss one payment, however, and the creditors could cancel all the concessions they made at the start of the program.
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Debt Relief Companies
3. DIY (do it yourself).
The formula for DIY isn’t complex: build a budget; reduce your spending; increase your income; use the extra money to pay down the debt. The problem is forcing yourself to make paying off debt a priority, when obviously it hasn’t been. You could make it even easier by calling your card companies and asking them to lower interest rates while you pay off the debt. You must be extremely self-motivated, but along the way, you will learn a lot about finance and finding solutions yourself.
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4. Debt settlement.
This one is tough. Instead of paying your creditors, you send money to a settlement company. When they believe there is enough in the account, they make an offer to your creditors to pay 50%-75% of what is owed to settle the debt. That often takes years. Meanwhile, your credit card debt keeps rising because of late fees and interest payments. By the time you service fees and late payments, you shave only 25%-30% off your original bill. Plus, this is a damaging negative on your credit report for seven years.
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5. Bankruptcy.
This has a bad reputation for a good reason: the news of your financial failure follows you for 7-10 years on your credit report. The flip side of that is that Chapter 7 bankruptcy only takes six months to complete and you get a fresh start on your financial life when it’s over. If you look at all other debt relief options and don’t see a way out in less than five years, this might be your best option. It should be a last resort choice, but it’s not the end of the world. You’re getting a second chance.
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Criteria for Choosing the Best Debt Relief Company
The most important criteria for choosing a debt relief company is deciding which form of debt relief works best for you. There is no one-size fits all solution that works for every consumer.
If you want to try debt consolidation, debt management programs or DIY (Do It Yourself), the starting point should be researching a nonprofit credit counseling agency. Let their counselors give you some free advice on budgeting and options to solve the problem.
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Conclusion:
Don’t be afraid to ask relatives or friends if they have any experience with debt relief companies. It may feel like an awkward topic, but if someone you know has turned their financial fortunes around with help from a debt relief company, it would pay to know who the company was and how they solved the problem.
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