Debt Relief | Everything You Need to Know
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Being in debt can be a stressful experience, or worse, a way of life. Do feel as if you’re always running out of money before the end of the month? Are your credit cards maxed out?
DO YOU WANT OUT? YOU HAVE CHOICES. LETS LOOK AT YOUR OPTIONS.
If you want to get out of debt and live debt free you’ve come to the right place. The effects of the Economy Collapse coupled with stagnant wages have left many families facing the need for debt relief.
It is the worst feeling when faced with a mountain of debt. This can leave you practically tearing your hair out or feeling as if your world was as bleak as a rainy Monday morning. You may be getting repeated calls from angry creditors or even from debt collectors. In short, your life has become pretty miserable and what you want above all else is debt relief.
You’ve seen that there are things called debt relief programs and you’re been wondering what they are and do they really work.
First Step | Understand there are Several Debt Relief Programs
There are five types of debt relief programs. They are a Debt Consolidation Loan, Balance Transfer, Debt Management Plan, Debt Negotiation (or debt settlement) and Bankruptcy.
It’s important to know how each of these programs work so that you can choose the one that best fits your circumstances.
Debt Consolidation Loan
One way to achieve debt relief is to get a debt consolidation loan and use the money to pay off your other debts. Secured and unsecured debt consolidation loans are very different in loan types. Personal loans are unsecured loans, which means you don’t have any collateral (Or you don’t have a car or house for the lender to take if you default on the loan).
Here is a list of different Debt Types:
- Secured Debt: Utilizes a form of collateral, like a house or car
- Unsecured Debt: No collateral, like credit cards or personal loans
- Fixed Interest Rate Debt: Has the same interest rate for the entire timeline of the loan, like some mortgages
- Variable Interest Rate Debt: Interest rate may change over the life of the loan, like credit cards
- Fixed Payment Term: the loan is set to be paid off by a certain date, like a mortgage or student loan
- Variable Repayment Period: No set date by when the debt must be repaid, like credit cards
- Deductible: This loan is used to better your personal situation and therefore may have tax benefits, like a mortgage or student loan
- Non-Deductible: Loan that is not used to purchase an appreciating asset or new skill, like credit cards or a personal loan
If your credit isn’t so red-hot but you own your home and have some equity you should be able to get either a homeowner equity line of credit or a home equity loan.
How can you know if a debt consolidation loan would help you achieve debt relief? You’ll first need to calculate the average interest rate you’re now paying. For example, if you have credit card debts that average interest rate is 20% on $50,000 of debt. If you could get a personal loan at, say, 10% you monthly payments would drop roughly $350 dollars a month on the same amount of money. Or you chose a home equity loan or home equity line of credit you would also have much lower monthly payments though it would take you more time (15 or 30 year loan options) before you’d have total debt relief.
If you have high-interest credit card debts you might be able to transfer their balances to a new one with a lower interest rate or, better yet, a 0% balance transfer card. You would need to calculate the average interest rate on your credit card debts and then compare this with the interest rate on the new card.
Of course, if you could qualify for a 0% balance transfer card you’ll have as many as 18 months’ interest free, which might be enough time for you to pay off the new balance.
You can get a Free Debt Consolidation Quote to see what rates are available right now.
However, you’ll need to have pretty good credit to get one of the 0% transfer cards. And you would need to pay off your balance – or as much of your balance as possible – before your introductory period ends as your interest rate could then skyrocket to as high as 19%.
WARNING: BE VERY CAREFUL WITH THIS OPTION. Read the terms of the balance transfer. For example, many credit card companies offer 0% or free balance transfer fees. BUT, after the 18 month terms expire the interest rate could jump to a high interest rate. So you need to do two things. First, check the terms. Second, have a contingency in place. Its possible, the interest rate will require a transfer after (for example) 18 months to another low rate.
Debt Management Plan
A debt management plan is simply that – a plan for managing your debts. While you could create your own plan most people that are deeply in debt choose to go to a consumer credit counseling agency for a Debt Management Plan.
The way this works is that you’ll be assigned a counselor who will develop the plan and present it to your creditors. They will negotiate with them to get your interest rates reduced and any fees waived.
Assuming your creditors sign off on your plan you’ll stop paying them. You will make a fixed payment each month to the credit counseling agency instead.
Your creditors may allow you to keep one credit card to use in case of an emergency but you’ll lose the rest. Your monthly payment should be a lot lower than the sum of the payments you’ve been making. It typically takes from four to five to years to complete a debt management plan but at the end you should have total debt relief.
While it’s possible to negotiate several things with lenders the most popular one is debt settlement. The way this works is that you contact each of your lenders and offer a lump sum payment to settle the debt but for less than you owe. This has become very popular as it’s the only way to save a substantial amount of money versus the other debt relief programs where all you’d be doing is transferring your debts from one set of creditors to a new one.
Although it’s possible to settle your debt yourself most people choose to use a debt settlement company. There are several good reasons for this. The first is that DIY debt settlement means you’d need to have the cash available for your lump-sum settlements. This problem goes away when you choose a debt settlement company as you’d be making a fixed payment each month to an escrow-type account. Second, when you use a debt settlement company it relieves you from the stress of dealing with your lenders.
Of course, debt settlement companies charge a fee that typically ranges from 15% to 30%. But the best ones don’t collect their fees until they have settled all of your debts, which amounts to a 100% satisfaction guarantee as you could drop out of your program at any time and not pay a penny. On the downside, debt settlement will have a negative effect one your credit score and by as many as 80 points.
A debt settlement program typically takes from 24 to 48 months to complete but then you will have achieved debt relief.
The Best Debt Settlement Companies heading into 2017
National Debt Relief
National Debt Relief does a good job on telling you what you can expect from the beginning. The will cover kinds debt qualify, how much you need to enroll, the fee you can expect to pay (20%), and the average savings after fees (30%). The company works with a wider range of debt than most. National Debt Relief also has an A+ rating with the BBB, and is accredited with the AFCC and IAPDA. (You are out of luck in Connecticut, Georgia, Kansas, Maine, New Hampshire, South Carolina, Oregon, Vermont, and West Virginia.)
CuraDebt says it will work with as little as $5,000 in debt in certain circumstances, so if you have a smaller amount of debt, it might be worth a look. Incorporated in 2000, CuraDebt is also one of the more established debt-consolidation companies. (CuraDebt’s services are available in 37 states. You’re out of luck in Colorado, Connecticut, Georgia, Idaho, Illinois, Kansas, North Dakota, New Hampshire, South Carolina, Vermont, Washington, Wisconsin, and West Virginia.)
What some people call the ultimate answer to debt relief is bankruptcy. The way this works is that you hire a bankruptcy attorney who handles the process for you. If you choose a chapter 7 bankruptcy you will see almost all your unsecured debts discharged. Also, this will include credit card debts, personal loans, personal lines of credit, payday loans, collection agency accounts, and some other types of unsecured debts. However, bankruptcy will not discharge secure debts such as your auto loans or mortgage. It will also not discharge alimony, family support, spousal support, past due taxes and student loan debts.
The downside of bankruptcy is that it will stay in your credit reports for as long as 10 years. You will have a very hard time getting new credit after the bankruptcy and it will have a very high interest rate.
Does Debt Relief really work?
Yes, debt relief plans do work. But you need to do your homework before choosing one to make sure it will help you become debt free within a reasonable amount of time and at a reasonable cost. You need to understand that there are Pros and Cons to each option.
Frequently Asked Questions about Debt Relief
Q. How does debt relief affect credit?
A. The answer to this depends on which debt relief program you choose. If you choose a debt consolidation loan or a balance transfer this could actually have a positive effect on your credit. A debt management plan might help your credit or damage it, depending on your DMP is report to the three credit bureaus. Also, as you have read, debt settlement and bankruptcy will both have a very bad effect on your credit although debt settlement will not damage it as much as a bankruptcy.
Q. Which debt settlement company is the best?
A. The website Topconsumerreviews analyzes debt relief companies each year and then ranks what it has found to be the top 10. This year it ranked National Debt Relief number one and CURADEBT as number two. Additionally, a BBB Accredited, in business since 2009, and they have helped over 100,000 customers get out of debt.”
Q. Why choose debt relief?
A. The best reason to choose debt relief is if you feel overwhelmed by your debts. If you’re behind on your bills, and you don’t see any way to get caught up in a reasonable amount of time, then you may want debt relief. The good news is that there’s several ways to achieve it.
Q. Are any debt relief companies legit?
A. Yes, there are many debt relief companies that are totally legitimate. As noted above, one of the best is National Debt Relief. Other legitimate debt settlement companies include Cure One Debt Relief Services, Curadebt and Avant.
Q. Where to go for debt relief?
A. There are a number of places to go for debt relief. Included in this group are credit unions, banks, consumer credit counseling agencies and debt settlement companies. Which of these would be best for you is something that only you can determine.