When you’re struggling to pay your bills, there are many debt relief options. Some are better than others, so it’s important to do your drp research.
For starters, make sure the company is legitimate. Check their accreditation and read reviews from past clients. Also, find out how much they charge.
Debt-relief programs
If you’re struggling with unsecured debt like credit cards, personal loans, and medical bills, debt-relief programs can help you find a workable solution. These programs can include debt consolidation, credit counseling, and debt settlement.
The best debt-relief programs offer a variety of services that can help you pay off your debts in a reasonable amount of time. They may also help you improve your credit score and lower interest rates on revolving debts.
However, before choosing a debt-relief program, be sure you know what to look for. If a company demands upfront payment, guarantees to settle your debts for a fraction of what you owe, or refuses to send you free information about their services, avoid it.
Debt management plans are an option for people who owe a significant amount of unsecured debt (credit cards, personal loans, and medical bills). They’re designed to have you paying off your debt within 3-5 years.
Debt consolidation
Debt consolidation is a process that involves taking out one loan to pay off multiple debts. It can help lower interest rates and reduce monthly payments, as well as improve your credit score.
If you have a large amount of revolving debt, consolidating it can make it easier to manage and pay off. However, if you continue to use your credit cards and accumulate new debts, it may not resolve the issue.
It also can cost you money, and your credit could suffer from a hard credit inquiry that can temporarily lower your credit score.
There are several ways to consolidate your debt, including a debt consolidation loan, balance transfer credit card and home equity line of credit (HELOC). These types of loans are usually secured by your home or 401(k) account, so they involve more risk than traditional unsecured debts.
Debt settlement
Debt settlement is a form of debt relief that involves negotiating with creditors to reduce your overall debts in exchange for a lump sum payment. This can help individuals and families avoid bankruptcy and save them money by lowering their balances by as much as 50%.
During the process, debt settlement companies will advise you to stop making payments to your creditors while they negotiate. This can result in late fees, penalty charges and possibly legal action against you.
In addition, not making payments to your creditors during the negotiation can negatively impact your credit report. Delinquent accounts and debt that lenders have charged off stay on your credit reports for seven years.
When choosing a debt settlement company, be sure to check with your state Attorney General and local consumer protection agency. Ask about any consumer complaints on file and find out whether the firm is licensed to operate in your state. Also, look for companies that do not require you to pay fees before they begin work.
Bankruptcy
Bankruptcy is a legal process that allows individuals and businesses to erase their debts and start over. Lawmakers created bankruptcy to help people who were in financial distress due to bad decisions or unfortunate events.
Generally speaking, bankruptcy is a safe and effective way to discharge your debts. You can use this tool to eliminate unsecured credit card debt, medical bills, overdue utility payments, personal loans and gym contracts, among others.
In some cases, bankruptcy may allow you to keep assets that have been seized by creditors as collateral for their loans. Those assets can include your home and automobile.
However, you still need to make payments on these assets if you want to retain them. You can’t get an automatic stay to stop a foreclosure or repossession, but filing for Chapter 13 can give you a chance to catch up on past debts and keep your property.