Debt relief: Understand your options and the consequences

  (photo credit: INGIMAGE)
(photo credit: INGIMAGE)

If you are not making any progress on your debt, then you can reconsider your options and go for debt relief. This is a way to ease the burden of your oppressive debt. Your debt can overwhelm you especially when you have tried everything but there is still more to pay. In that case, you can compare the best debt relief options and check whether you qualify for any.  

Debt relief options change the debt amount or the terms applicable to get you back on track with your finances. Even though the debt-relief programs may not work for everyone, it is good to understand the loops that exist. This strategy involves wiping your debt in different ways. It could be through bankruptcy, decreased interest rates or talking to creditors to lower payments. 

Why you should consider debt relief 

Living an insurmountable amount of debt is overwhelming. When you have put in a lot of effort to clear your debt but are still struggling, you can seek debt management, bankruptcy or debt settlement. Go for these options in the following scenarios:  

  • When you have exhausted all options of repaying unsecured debt such as personal loans, credit cards or medical bills. This is especially if it is more than five years after taking extreme measures to reduce your spending. 
  • When the absolute unsecured debt is half or more than your total gross income. 

Debt Relief Options to Consider

Do not go for debt relief if you have the potential to repay your unsecured debt in five years. In that case, all you need is a do-it-yourself plan. This may involve debt consolidation, cutting down your expenses and making appeals to your lenders. However, consider these debt relief options: 

  • Bankruptcy 

You can only get into a debt management or debt settlement plan if you can pay your debt as agreed. If you cannot manage to do so, engage a bankruptcy attorney. Consider this option before going for any debt relief plan. Initial consultations are cost-free and only payable if you qualify. 

The bankruptcy application includes Chapter 7 liquidation, which can delete most credit card debt.  It also involves erasing medical debt and any other unsecured personal loans. 

  • Debt Management Plans 

A debt management plan seeks to either reduce the chargeable interest rate on your loans or waive debt fees. In this plan, the idea is to make a single monthly payment to a credit-counselling agency. Afterwards, the agency distributes your payment among all your lenders. 

Credit card companies and credit counselors put in place lasting agreements to help clients manage their debts. The plan involves closing all your credit card accounts until you have paid all debt. 

  • Debt Settlement Option 

This is usually not a good option when compared to bankruptcy. Therefore, you must check whether you qualify for bankruptcy first before going this route. 

Debt settlement involves stopping to pay your lenders and putting money in an account that debt settlement companies control. They then approach your creditors while the money owed continues to pile up. You do this in the hope that creditors may accept a smaller payment for fear of losing everything. 

  • Do-it-yourself Relief on Debt  

Looking for help with debt relief is always a welcome idea for anyone stuck in debt. However, those are not the only options you have. If you do not meet the requirements to engage in any of the above plans, you can do it yourself. You can create a plan on your own to mitigate your debt effects. 

Take it upon yourself to contact creditors and let them know why you have lagged in your debts. Through their hardship programs, they can afford you some leniency and help you address your debt burden. Part of this help is by reducing the interest rate on loans and waiving some of the fees. 

As you look for options for debt relief, it is important to look at the repercussions that come with whatever decision you make. However, as debts continue to pile up, you may need urgent help on how to fix the increasing burden on your finances. The debt relief options highlighted here are of great help. This is especially if you have tried out all other strategies available and have not succeeded.  

This article was written in cooperation with