If you’re struggling to manage credit card debt or a mortgage, you have options for reducing or eliminating your obligation. A debt relief solution is a tool you can use to get control of your finances and improve your credit score. Investopedia spoke with consumer finance expert Erica Sandberg, who hosts a video podcast called Making It In San Francisco and works as a budget and debt counselor at the Consumer Credit Counseling Service of San Francisco, to get her take on the topic of debt relief.
Debt relief includes any action that reduces the amount of money a person owes to creditors, or reduces the amount of interest paid on debt. The goal of any type of debt relief is to improve a consumer’s financial situation and enable them to make more informed choices about how they spend their money in the future.
There are a variety of debt relief solutions available to consumers, including debt consolidation loans, debt settlement programs and bankruptcy. Each has its own benefits and drawbacks.
Debt consolidation loans are used to combine multiple unsecured debts into one single debt with a lower interest rate. A debt management program (DMP) is another form of debt relief that allows consumers to consolidate their credit card debt into one single monthly payment, which can be tied to a budget and designed around the borrower’s income. A debt management program can also help consumers save money by lowering interest rates and providing a longer term to pay off the debt.
A debt settlement company like Pacific Debt negotiates with your creditors to settle the amount of debt you owe for less than what’s on your balance sheet. While this can be an effective way to reduce your debt, it can have a negative impact on your credit score. In addition, a settlement will remain on your credit report for up to 10 years.
While there are a number of debt relief options, it’s important to find the best option for you. A credit counselor can help you decide which type of debt relief plan is right for you, and can provide you with the resources to implement it successfully.
HIPC is an initiative of the International Monetary Fund and the World Bank that helps poor countries get full debt relief from multilateral creditors on their sovereign debt. A country must meet certain criteria, including adopting and implementing a poverty reduction strategy, before they can receive their full share of debt relief under the HIPC Initiative. Currently, 36 countries have reached their completion point and are receiving debt relief from HIPC. However, the HIPC Initiative is voluntary and some creditors are not participating. Until this changes, it’s unlikely that the poorest countries will receive full debt relief.