Debt relief is a type of debt management that helps people get out of debt by changing the terms of their loans. It may include filing for bankruptcy; getting a lower interest rate or payment schedule; or persuading creditors to accept less than the full amount you owe.
The benefits of debt relief, such as reducing your debts and lowering your payments, can help you get back on your feet more quickly. It also can give you more time to save for retirement or a down payment on a home.
Depending on the method you use, debt relief can be one of the fastest ways to get out of debt and improve your credit score in the long run. But it’s important to understand the pros and cons of each type of debt relief before you choose the one that’s right for you.
Debt settlement
Often used by consumers who have a large balance on a credit card, debt settlement is a way to negotiate with your creditors to lower the amount you owe. It usually works with unsecured debts, like credit cards and medical bills, but it can also be applied to secured debts, such as mortgages or car loans.
It can be a good option for some people, but it can be expensive and cause your credit score to drop by an estimated 100 points. It can also increase your tax bill, so you should be sure to research all your options before signing up for a debt relief program.
Companies offering debt relief typically charge a fee for their services, including negotiating with your creditors and helping you put aside money for your payoff. The fee varies between 15% and 25% of the unsecured debt you owe.
New Era Debt Solutions is a debt relief company with a rating of 4.92 out of 5 for customer satisfaction through the Better Business Bureau. Its fees are slightly lower than those of some other services we considered.
Freedom Debt Relief has an A+ rating from the Better Business Bureau. Its website has several negative reviews, though they are relatively few compared to those of the other services we reviewed.
Some of the complaints on the BBB site are that the support specialists aren’t knowledgeable about the debt relief process and take too long to respond to questions. The company also has high enrollment fees, and a small percentage of clients don’t qualify for debt settlement.
If you’re unsure about whether debt settlement is the right option for you, talk to an experienced credit counselor or financial advisor. They can provide you with more information and can recommend a better solution.
A reputable debt relief provider can reduce your debts by up to 40% of the original amounts you owe, including fees. It can do this by negotiating with creditors, attorneys and collection agencies on your behalf. It can also help you avoid a lawsuit.
Both borrowers and lenders can benefit from debt relief when a country’s economy is suffering from a “debt overhang.” This condition occurs when the cost of a nation’s debt, taken with a decline in the economy, discourages new investment. Debt relief can help the economy by making it more attractive to invest, which increases expected growth rates.