Grappling with debt is a common problem for many households, but if you are starting to feel like things are hopeless and you are struggling to make monthly minimums, you may want to explore options for debt relief. There are a few resources that can help you get a grip on what you owe.
Consider Refinancing
If you have student loans, you might struggle to make monthly payments on top of your other obligations. Depending on your credit score, refinancing debt may get you a lower interest rate, which can save you money. It essentially involves taking out a new loan to pay back the old one, and the new loan can come with more favorable repayment terms. By refinancing student loans with NaviRefi, it can make it much easier to handle your debt obligations.
Take Part in Credit Counseling
Credit counseling is an option offered by many relevant nonprofit organizations, and you can use it when you need help managing your money. Credit counselors can help you with your budget, and they can help you prioritize monthly bills. In some cases, they can work with lenders to prevent your debt from going to collections. You can look for options from your area’s attorney general, and you will most likely need to meet with the counselor for at least half an hour.
Consider Debt Management Programs
There are credit counseling agencies that offer management programs, which can help you take charge of your bill paying system and consolidate what you owe. That way, you’ll only have one payment to the counselor. The counselor can then distribute the funds to the various creditors. They also work with lenders to see if they can reduce fees or lower your interest rates. Know that if you enroll in one of these programs, you will typically be in the program for around three to five years. Some offer monthly fees or startup costs, but if your household income is below a certain threshold, these fees may be reduced or waived. When you work with a representative for the program, you will need to share information about your financial situation. It’s a good idea to arrive with a list of questions.
Work With the Creditors
Creditors might have relief options or even ways of modifying the payments, but these are unlikely to be listed on their websites. You may need to contact them to find out what they offer. As you explain the hardship you are facing, you might be able to get extensions, so you have more time to come up with the money. If you have a house, you could get a mortgage modification to stay in the home. If you have credit card debt, you might be able to get late fees and interest reduced to make it easier to pay them back. No matter how you choose to go about it, don’t be afraid to contact the company to get help with your debt. Go over recent bills to see if there is information on reaching out to these lenders.
Understand How Debt Relief Companies Work
You may also be considering a debt relief company that will negotiate the balance on each of your accounts when they fall behind. Another word for a debt relief company is debt settlement or debt consolidation programs (not loans).
Please note that your credit score will most likely fall and there are definitely pros and cons of this option.
Also, please note that some companies such as Americor may pitch a debt consolidation loan, but you may actually only qualify for the debt consolidation program.
There are differences between debt consolidation loans and programs, so it’s important to distinguish the difference.
Understand The Debt Relief Program Process
When you enroll in a debt relief program, you will have an escrow bank account where you will add funds each month to increase the balance. Instead of paying your creditors, your funds will go here each month.
Please note that this means that your accounts will go behind and you may face collection calls and potentially even a debt collection lawsuit.
Once the debt relief company has enough money in the escrow account, they will attempt to settle the debt for less than is owed. You should have the right to approve or not approve the settlement.
Once the account is settled, the funds should come from the escrow account directly to the creditor to settle the account.
The debt relief company would continue that process until all of the accounts have been settled.
Debt Relief Pros and Cons
There are many pros and cons of debt relief to consider. For example, pay close attention to what the ads are pitching. TurboDebt has recently had many ads on social media that appear to be pitching National Debt Relief’s debt settlement program.
That said, here are some pros and cons to consider:
Pros:
- You can save money.
- You generally get on a payment plan when settling the debt.
- Often you can get out of debt within 48 – 60 months instead of 10-30 years by paying minimums.
Cons:
- You can get sued for unpaid debt
- Collection agencies may call you often.
- Your creditors may not work with the debt relief company.
- You may be responsible for fees and interest added to your debt balance.
- You may be liable for taxes for unforgiven debt if you are deemed tax solvent.
Is Debt Relief Right For You?
Debt relief is a common option when someone faces a financial hardship, but is it right for you? You understand your finances best, so hopefully the information above can help you make the most informed decision.