When you first start looking into debt relief programs, the different options available can certainly leave you scratching your head. That’s why we’ll be going over a few examples and helping you in the process of understanding how a debt relief program works.
Understanding the Basics
Debt relief can be a complex process, so it’s important to have at least a basic understanding of how a debt relief program works. For the layman, the debt relief process involves a debtor, generally with overdue debts, approaching a debt relief company for assistance.
This debt relief company will then go over the debtor’s liabilities and suggest the best possible route for them to go through. Often, this can provide a lot of help in lowering your overall interest rate, or the total amount you owe. For debtors that owe a lot, these kinds of debt relief programs could be a real game-changer.
Through this process, a debtor can reduce the overall interest rate they’ve been paying on debt by having it all rolled into one large, lower interest rate debt. This process begins with a debtor approaching a debt relief company, who will then go over your debts and then tell you what kind of plan would work best for you.
Once both parties have agreed to the consolidation party, the debt relief company will then write a large loan to pay off all of your outstanding debt, and you’ll make payments on the loan until its completion. This can help give a borrower time to pay off their loans without them growing massively over time. It’s especially helpful for those in debt because of credit cards, where interest rates can be up to 18% or more each month.
Another common type of debt relief offered is something known as “Debt Settlement”. This process allows a borrower to enlist the services of a debt settlement company. The company then works on your behalf to negotiate with your creditor. The borrower stops payment on their outstanding debt, and instead, places that money into an account that will slowly grow over time.
Once the account has grown to a sizeable amount, the company will then use an offer of a one-time payment in full of the agreed-upon amount as leverage in their negotiations with your creditor. While this can be a lengthy process, anywhere from 2-4 years on average, the negotiations can help to save you a hefty sum on your outstanding debts. For those with a lot of debt, this may very well be a worthwhile solution to look into.
Are There Any Other Debt Relief Programs I Should Know About?
There are a few other options out there, and they range from the simple to the extreme. One of the simpler ones is known as “Credit Counseling“. Generally, this is a type of service utilized by those with a smaller amount of debt looking to educate themselves on how to pay it all back and improve their credit score over time.
Debt management is another potential solution, this involves a credit counseling agency working with your lenders to either reduce the total owed or reduce the interest that’s been accruing. The more extreme option is filing for bankruptcy.
This will help wipe out your overall debt, but also leave you with a nasty mark on your credit score that could impact your future potential to borrow money for things like a house or a car. Whatever method you end up using, however, taking your first steps towards financial freedom will give you a sense of accomplishment that’ll help propel you towards your goals. And while understanding how a debt relief program works can be tricky, we hope we’ve helped you through it.