Debt Relief Programs Compared
Understanding the pros and cons of different debt relief programs, to find the best solution for your needs and budget.
Debt relief programs refer to any method that helps solve debt problems when traditional monthly payments aren’t working. These are the solutions you use when you can’t afford to make your monthly payments OR when your monthly payments aren’t effective at eliminating a debt. While there are eight different programs that can provide debt relief, only four of them generally apply to credit cards. We’ll look at those first.
4 credit card debt relief programs
This type of debt relief delays or suspends the monthly payments on a specific debt for a set period of time. You call your loan servicer and let them know that you can’t make your payments. They agree to either reduce your payments or suspend them entirely for a period of time. That way, you have time to get back on your feet without missing debt payments, which would negatively impact your credit.
With this type of credit card debt relief, you call your creditor to a plan to pay off your account. The creditor will typically agree to lower or eliminate the interest applied to your account. However, they will typically freeze the account so you can not make any new charges and the account may be closed once it is paid off.
You agree to a monthly payment that you can afford that allows you to pay off the balance and catch up on any past-due amount that you owe.
Debt consolidation takes multiple debts and rolls them into a single monthly payment at the lowest interest rate possible. There are several ways to do this. Debt consolidation loans take out a new loan to pay off your existing debts. Debt consolidation programs are repayment plans that you set up through a debt relief service. For credit card debt, you can consolidate multiple balances using a debt management program.
With debt settlement, you get out of debt for less than the amount you owe. You pay back a percentage of your outstanding balance, then the creditor agrees to discharge the remaining balance owed. Each debt you settle creates a negative item on your credit report that sticks around for seven years. This will decrease your credit score, but it can be a good solution for debts that are already in collections.