A Blueprint to Debt Relief: Understanding Your Options

The road to freedom from debt can be a complicated one, filled with financial anxieties. We have compiled a list of some tips that may help you in this process. Begin by making a comprehensive list of all your debt amounts, as well as details like interest rate, monthly payment amount, and the due date. While you are going through this process, make changes to your budget, and be honest with yourself.

Renegotiate Your Monthly Bills

Right now, you might be pouring over your monthly expenses trying to find a way to cut them back. It may be possible to lower some of those bills by doing a little bit of negotiating. Take a look at these suggestions:

  • Home Entertainment
    • TV service providers are often willing to negotiate, particularly if you have been a longtime customer. Call and ask if you may be able to lower your monthly bill or even downgrade your plan.
  • Internet
    • Internet providers will frequently negotiate with customers. We recommend doing your research to see what competitors are offering before you make the call to your current provider.
  • Auto Insurance
    • It may be possible to negotiate a lower auto insurance rate. Your insurance company will usually be willing to review your coverage to make sure you’re not paying for more than you need to.

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When to seek debt relief

If you could potentially repay your unsecured debts within five years, consider a do-it-yourself plan. However, if any of the below applies to you, may want to consider other debt-relief options:

  • You have no hope of repaying unsecured debt (credit cards, medical bills, personal loans) within five years, even if you take extreme measures to cut spending.
  • The total of your unpaid unsecured debt equals half or more of your gross income.

There are debt relief options available, but you want to make sure to do your research before committing to any agreement.

Make sure you understand and verify:

  • Requirements for qualification
  • Fees
  • Creditors that will be paid and how much (if your debt is in collections, make sure you understand who owns the debt so payments go to the right agency)
  • Tax implications.

Debt Settlement

Debt settlement companies generally will offer to contact your creditors to negotiate better payment plans or to settle or reduce your debt. They typically charge a fee, often a percentage of the amount you would save on the settled debt. This would typically be the cheapest way out of debt, depending on your situation, of course. Debt settlement offers might range from 10% to 50% of the amount that you owe. Keep in mind, debt settlement may still have a negative effect on a credit report, but may still be a better option than a charge-off or bankruptcy status.

Debt Settlement vs. Bankruptcy

If the process works as intended, debt settlement can be much more beneficial to everyone involved versus bankruptcy. Bankruptcy involves using the debtor’s non-exempt assets as a way to settle the debt and repay creditors. Bankruptcy can have a much larger impact on your finances and credit report than a debt settlement. Keep in mind a bankruptcy attorney is another process altogether. However, in terms of length of time, bankruptcy can be completed after three to six months, compared to years for debt settlement. Bankruptcy may be less stressful, though the results of bankruptcy filing will remain on your credit report for ten years.

Debt Management Plans

A debt management plan allows you to pay off your debts at a rate you can afford. This plan may be a good option if you can afford the monthly repayments on your priority debts (such as a mortgage, rent, and council tax) and your living costs, but are struggling to keep up with your credit cards and loans. Debt management plans do not directly affect your credit scores but keep in mind that closing accounts may also hurt your scores. Make sure you understand the fees and what alternatives you may have for dealing with debt.

Debt Management On Your Own

Create your plan by doing what credit counselors do in debt management plans. Contact your creditors, explain why you fell behind and what concessions you need to catch up. Most credit card companies have hardship programs, and they may be willing to lower your interest rates and/or waive fees. Make use of financial education programs that can help you regardless of the stage of finances you are in.

The Bottom Line

Your debt relief options depend on your situation, how much you owe, and how much time it will take you to pay it off. The best approach is to do your research and try talking to an expert to better understand your situation and the options that may be available.

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