If you’ve been struggling to make ends meet, debt relief can be a life-changing decision. It can allow you to get out from under overwhelming debt and rebuild your credit, so you can save for retirement.
Debt relief options can include negotiating with creditors or getting your debt wiped out entirely in bankruptcy. Other options include debt consolidation loans and debt settlement programs.
The right solution is individualized to each person’s unique situation, so it’s important to understand your options before you decide on a course of action. Below, we review six main debt relief choices and provide an overview of each option so you can choose the right one for you:
No matter your financial situation, it’s always best to start with a nonprofit credit counseling agency. These agencies offer free budgeting help and an initial consultation to help you understand your debt situation.
In addition, a credit counselor will work in your best interest and not judge you for your debt. Many of these companies have helped thousands of clients find solutions that fit their specific needs.
Debt management plans
A debt management program is an alternative to bankruptcy, and can eliminate unsecured debt in 3-5 years. This option works with a third-party company that negotiates with your creditors to lower interest rates and monthly payments, which can help you pay off the debt faster.
It’s also easier to track your progress through a program than it is to manage your debt independently. The best debt relief companies will let you track your progress through a dashboard on their website, so you can see how your payments are impacting your debt reduction.
Some programs can leave dings on your credit report that will not be removed. That’s why it’s important to choose a debt relief solution that won’t damage your credit score in the long run.
Debt relief programs are not for everyone, and you should only use them if you can afford the payments. It’s also important to understand what the consequences are if you do not pay as agreed.
If you are struggling with large amounts of debt and don’t think you can avoid it, it may be time to consider filing for bankruptcy. The process isn’t for everyone, but it can be a life-changing decision.
Before filing for bankruptcy, you should seek the advice of a lawyer to determine whether it’s a good idea for you. Your credit counselor will be able to tell you if you qualify for the process, and a bankruptcy attorney can answer any questions you have.
Depending on your income and current financial situation, you could qualify for debt relief through a government program, such as the Federal Debt Ceiling Act or COVID (the Credit Card Accountability, Responsibility and Disclosure Act). In these cases, the government will negotiate with your credit card companies to reduce your debts or forgive them altogether.
Some programs are offered by private debt settlement companies that charge a fee to negotiate on your behalf. These services can be effective in eliminating a substantial amount of debt but are not guaranteed to work. In addition, these debt relief programs can leave dings on your report for seven years after you stop paying the accounts.