Debt is becoming more and more of an issue. Today, many American households are carrying debt. So it is only natural to look for answers and find a way to deal with the debt before you are way too deep into it. The idea of debt relief is running through the minds of many people who are struggling with debt. Most of them are not even sure if debt relief is actually achievable. The truth is that it is, and there are different ways to get there.
Debt relief programs
Debt relief programs have been around in the loan lending industry for a very long time in one form or in another. Since many people are experiencing debt problems nowadays, the need for debt relief programs has become almost inevitable. The reality is that most American households have more than $15,000 debt on the average as credit card debt. Now imagine if you add to that amount the money that people owe for their student loans, mortgages, medical bills debts and personal loans, the picture does not look good at all.
State of the economy
The whole current state of economic environment we live in is structured in a way that makes it almost impossible for many people to live a life free of debt. The truth is that the living costs have increased while incomes have mainly remained the same or even have gotten worse. And so it is only natural for people to have difficulties even with paying their regular monthly bills, not to mention paying for college or buying a house. And of course, we cannot go without mentioning the unexpected emergency expenses that come without a warning sign. This is how many people go deeper and deeper into debt until they hit rock bottom. We also need to mention that the unemployment rate has also increased, which means that there are more people without jobs who need to find a way to deal with their debt. We also cannot overlook the fact that there are people who did a poor job at managing their budgets, which ultimately leads them to getting into debt.
Methods for achieving debt relief
Regardless of the exact amount of debt you carry or the exact type of debt you have, there is most likely a way that you can use to deal with it. Every person’s situation is different and so are going to be the solutions for achieving debt relief. However, there are some methods that have gained more popularity over others. Some of these most popular debt relief methods include debt settlements, debt consolidation loans, credit counseling, credit card balance transfers. The debt relief method that is probably the most serious of all of debt relief options – bankruptcy. We are going to discuss some of these debt relief options below. It would probably be good to mention that even though each of these debt relief methods has roughly the same end goal, the only debt relief option that is actually capable of reducing the debts you owe is debt settlement. However, there are many companies advertising their debt settlement services with false statements. So, you should be really careful when choosing debt settlements as your way of fighting debt. Now let’s dive into some of these debt relief options.
Filing for bankruptcy
Bankruptcy should always be a last resort option. You should only think about filing for bankruptcy if you have already tried other ways of dealing with your debt and you have not had any success. Even though bankruptcy is definitely not the best scenario in most cases, it can actually be an extremely powerful financial tool if used correctly and in the right financial situation. The most popular type of bankruptcy is called Chapter 7 bankruptcy. When you file for Chapter 7 bankruptcy, you will get an appointed trustee by the court who will collect most of your assets. And since all of your secured loans were secured with some of your property, when you declare Chapter 7 bankruptcy, all of your property that has been used as collateral for your loans will most likely be seized by your creditors.
How will bankruptcy affect your credit score?
You need to know that by filing for bankruptcy, your credit score will take a massive hit. Bankruptcy will remain on your credit score reports for 10 years. Your credit score will drop based on its current state at the time that you file for bankruptcy. Basically, the higher your credit score is, the more it is going to drop. Your credit score normally serves as a sign of your credibility. And so, if you suddenly declare bankruptcy, most of your creditors will see that as an obvious sign that you cannot be counted on to make wise financial decisions in the future. So when you compare the effect that bankruptcy is going to have on your credit score with the effect that debt settlement is going to have on your credit score, it is pretty easy to see that your credit score would take a bigger hit if you declare bankruptcy .
Many financial experts claim that debt settlement is a far better debt relief option than bankruptcy. The effect that it has on the borrower’s credit score is one of the main reasons for that. Debt settlement companies often promise that they will reduce your overall debts by negotiating terms with all of your creditors.
How do debt settlements work?
To start the debt settlement process, you would normally need to get in touch with a debt settlement company and explain your specific financial situation and problems that you are having. You would need to give that company the names of all of the creditors that you owe money to and the exact amount of money that you owe to each one of them. After that, for reducing your debt, the debt settlement company will give you an estimate along with a brand new, smaller monthly payment. After that point, you will stop paying your creditors directly. Instead you will start paying your debt settlement company a single monthly bill. The money that you give to the debt settlement company will be saved in an account. The debt settlement company will contact your creditors in an attempt to negotiate a settlement with them. Once the debt settlement company and your creditors reach an agreement on the amount of the settlement, the credit company pays off your creditors and issues a fee for that settlement. That fee may be a fixed amount or a percentage of the debt that has been canceled.