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Is debt keeping you up at night? You’re not the only one. With record levels of consumer debt in the U.S., lots of people are looking for solutions. It’s easy to get lost in all the different debt relief options out there. We’re going to make it simple. We’ll go over the most common solutions, showing you where to start, and what to do if you need to take stronger action.
Certified credit counselors have the knowledge and expertise you need to find a solution. They work for nonprofit agencies that exist solely to help people get out of debt. You can get an unbiased, expert opinion on the best solution for your situation. During a free consultation, they’ll analyze your debts, income, and spending habits to help you understand your financial situation and identify the best path forward. Beyond just advice, they can also help you develop a budget and give you information about your rights and responsibilities.
Learn what to expect when you take the plunge into credit counseling, so you can find the path forward to achieve freedom from credit card debt….
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Talk to a certified credit counselor for free now to find the right solution for your unique financial situation.
A Debt Management Program (DMP) is a structured repayment plan facilitated by a credit counseling agency. It consolidates multiple unsecured debts into a single, manageable monthly payment. Importantly, a DMP is not a loan or debt forgiveness; you’ll still repay your original creditors. However, you’ll benefit from professional assistance. Your credit counselor will work with you to create a budget-friendly payment plan and negotiate with creditors to potentially lower interest rates and waive fees, preventing further penalties.
Typically, a DMP lasts three to five years and can significantly reduce your total credit card payments, often by up to 50%. Certified credit counselors, working for accredited non-profit agencies, recommend a DMP only when it aligns with your best interests and is the best option for your situation.
DMPs have a lot of advantages. They are one of the most accessible debt relief options because you don’t need good credit to qualify for them, and they can be used to pay off high amounts of debt. As long as you have a consistent income to cover the monthly payment, you’re likely eligible. Successful completion generally has a positive or neutral impact on your credit score.
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DMPs can be a lifeline for many people. This video offers one example of how a debt management program helped someone get out of debt:
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If you have good credit and a lower amount of debt, consolidation might be a viable option. Debt consolidation is a financial process where you combine multiple debts into a single monthly payment. There are two basic ways to do this:
These loans provide a lump sum to pay off existing debts, leaving you with one new loan and a single monthly payment. Interest rates vary based on your credit score, with the lowest rates reserved for those with excellent credit.
These cards allow you to transfer balances from high-interest credit cards to a new card with a lower or 0% introductory APR. This can significantly reduce interest costs during the introductory period, but rates typically rise afterward.
In both cases, you need good credit in order to qualify for the lowest interest rate possible because reducing the interest rate makes it easier to pay off your debt faster. If you have bad credit, you’ll get high interest rates, so debt consolidation will not be very helpful.
Even if you have good credit, if you owe too much, consolidation might not work well. If your debt exceeds $50,000 to $100,000, the interest accrued on a consolidation loan might outweigh the benefits. In these cases, a Debt Management Program (DMP) may be a better solution.
Credit card debt consolidation can help you traverse down a mountain of unpaid debt faster and easier. Learn how to reach the debt-free finish line….
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Debt settlement is a debt relief strategy you’ve likely encountered in advertisements promising to settle your debts for “pennies on the dollar.” It involves negotiating with your creditors to accept a lump-sum payment that’s less than the total amount you owe.
Debt settlement has had a murky past, with a history of deceptive practices and consumer exploitation. Early debt settlement companies often preyed on vulnerable individuals, promising unrealistic results and charging exorbitant fees. This led to widespread consumer complaints and regulatory scrutiny. While regulations have improved in recent years, the industry’s past has left a lingering reputation of distrust. Consumers should exercise extreme caution and conduct thorough research before engaging with any debt settlement company. Look for ones that don’t charge upfront fees, guarantee results, or use high pressure sales techniques. You can also look for companies that are accredited by reputable organizations such as the American Fair Credit Council (AFCC).
While debt settlement can seem like a lifeline for those facing overwhelming debt, there are significant drawbacks. First, there’s no guarantee that creditors will agree to a settlement. This is important to note because some debt settlement companies may advise you to stop paying creditors, allowing your debt to escalate in an attempt to pressure them into accepting less. This strategy can backfire, leaving you with even larger debts and potential lawsuits. Even if a settlement is reached, each settled debt will negatively impact your credit report for seven years, severely limiting your future access to credit, such as mortgages and auto loans, and affecting interest rates. Also, the IRS may consider the forgiven debt as taxable income.
While debt settlement can be a viable option for individuals facing extreme financial hardship, it should be approached with extreme caution. It’s not a quick fix, and it carries significant risks that can impact your financial future for years to come. It is important to weigh the risks against the potential rewards before deciding on this route.
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When debt becomes insurmountable, bankruptcy offers a legal avenue for a fresh start, albeit one with significant consequences. Bankruptcy is a serious decision and should be considered only after exploring all other viable debt relief options. Two primary forms of personal bankruptcy exist: Chapter 7 and Chapter 13.
Chapter 7, often referred to as “liquidation” bankruptcy, involves selling off non-exempt assets to repay creditors. In most Chapter 7 cases, individuals are able to keep essential belongings (like their primary residence or vehicle within exemption limits). After the liquidation process, eligible remaining debts are discharged, meaning you are no longer legally obligated to pay them. This option is generally suitable for individuals with limited income and few assets, who cannot reasonably repay their debts.
Chapter 13, known as “reorganization” bankruptcy, involves creating a repayment plan over three to five years. This plan allows you to repay a portion of your debts based on your income and assets. You keep your assets, but you must adhere to the court-approved repayment schedule. This option is generally suitable for individuals with a stable income who want to retain their assets, such as a home or car, but are struggling to manage their debts.
Don’t ruin your credit before you explore all your options! Get a free consultation to find a better way out of debt.
The road out of debt is rarely smooth and sometimes it can get downright bumpy if you encounter issues, like harassing debt collectors. Although your path out of debt may not be easy, it should never be abusive.
Learn about the laws that protect your consumer rights »
These resources can help you get ahead of debt and manage it efficiently so it’s easier to avoid financial distress.
