This tutorial will answer the following questions:
- What is debt relief?
- What are most common debt relief programs?
- What are the benefits of debt relief programs?
What is Debt Relief?
Debt is a problem that will not be going away any time soon. There are many individuals, governments and businesses that are indebted to another individual, business or government. There is a solution for businesses and individuals who are under the pressure of debts. This solution is normally referred to as debt relief. Debt relief is a situation where a creditor offers their debtor some relief in paying money owed to them. The aim of debt relief programs is to lower the amount of debt that a person owes to a creditor.
There are a number of debt relief programs accessible to individuals who want to eliminate or reduce their financial liabilities. The most common are debt consolidation and debt settlement.
Debt Consolidation
Debt consolidation, also referred to as Consumer Credit Counseling, is one of the most commonly used debt relief options. Consolidation usually happens when a third-party business or person, commonly referred to as a debt consolidator, helps to combine all your debts into one. Besides combining all your debt into one lump sum, a debt consolidator may also negotiate with your creditors to lower your amount of monthly payments.
If you are having problems settling your monthly payments or if you are unable to make enough payments to lower the total amount you owe, debt consolidation may be right for you.
Michael had one personal loan and two credit cards. Though his payment history was faultless, he was finding it hard to manage his repayments, his money and maintain a balanced lifestyle. The balance on his loan was $20,000. His minimum monthly repayment was $850 in total; $350 for the personal loan and $500 for both credit cards. Michael then applied for a $20,000 debt consolidation loan and his application was approved. This minimum monthly repayment was reduced to $420, thus freeing up his money and allowing him to live again.
Debt consolidation programs offer numerous benefits. The main benefit is the ease of making payments. An individual only has to keep in mind a single due date, while at the same time keeping track of payments made.
Debt Settlement
Debt settlement, also known as debt negotiation, is another debt relief option. This program also incorporates credit card debt settlement. Credit cards have become a big financial problem for many, especially those who already have debt problems. With high interest rates, large credit lines, late fees and high monthly payments, credit cards can drag a person deeper into debt.
Debt settlement involves debt negotiations between the creditor and the debtor with the main aim resolving the outstanding balances by lowering the pay off amount. The debtor can hire debt settlement services to negotiate on his behalf. For example, if you are behind on payment for a high interest loan, it might take you as long as 25 years to pay off your debt. Debt settlement programs could help shrink your payment amounts and terms.
If you are unable to settle all your monthly payments every month, then debt settlement may be appropriate for you. If you are contemplating bankruptcy due to your debt and wish to avoid it, then you might want to consider debt settlement.
Mary J is a consumer who had gotten herself into credit card debt problems. She had six credit card accounts totaling $35,000. Though Mary J had a well paying job, she realized that the high interest payments will never allow her to get out of debt. Rather than declare bankruptcy, she decided to consult ABC Debt Settlement Services. After ABC negotiated with the individual credit companies, the total amount due was reduced to $15,000, thus saving Mary J $20,000.
Benefits of Debt Relief Programs
Debt relief has numerous benefits, some of which are obvious, while others may not be. The most obvious benefit of debt relief is that it provides a way out of debt. Debt relief programs may not get you out of debt immediately, but they will put you on the right path. The following are more specific benefits of debt relief programs.
The End of Multiple Phone Calls and Collection Letters
It is normal to receive phone calls or collection letters from creditors trying to retrieve money that is owed to them. Seeking debt relief may not make your debt disappear magically, but it is an important step in paying off debt. When a creditor understands that you are involved in a debt relief program, they will have an assurance that their money is on the way. Therefore, the collection attempts will become unnecessary.
Improved Interest Rates
High interest rates are the main reason many people get entangled in the cycle of debt. When the interest rate on your loan is too high, you won’t see much progress even if you make your payments diligently. Debt relief programs will lower the interest rates on your payments to a more favorable level.
Manageable Monthly Payments
In addition to improved interest rates, your monthly payment obligations will be more manageable. Once your interest rates are lowered, there will be an improvement in your monthly payments, thus easing the burden on your budget. You will make progress. With a good debt relief program, you will have extra money in your budget to save, invest or make purchases.
Become Debt Free Fast
Debt relief programs minimize the money spent on interest payments, thus helping you get debt-free quicker. Without having to increase your monthly payment, these programs enable you to pay your balances within the shortest possible time.
Credit Rating Improvements
Huge debts and late payments are some of the things that can be harmful to your credit score. With debt relief programs, you are likely to pay your balances quickly, thus your credit rating may improve in the process.