Are you stressed and drowning in debt? If you are, then you should know that debt relief is the secret to a happier life. Debt relief programs will help you create a structured plan that will get you out of the debt situation that you are wading in. The question is, what program will you choose?
While the main challenge is in the journey, you can set yourself up to succeed or fail through the plan that you will use to get yourself out of debt. Some people think that they can pick just any program from the list. That is not true. You nee to make your choice carefully. You have to understand each and every one of your options so you can see which of them will suit your specific needs best.
10 myths that consumers have about debt solutions
The debt relief programs you can choose from include debt consolidation loans, credit counseling, debt management, debt settlement and bankruptcy. All of these can get you out of debt. However, they follow different processes. Instead of defining them one by one (which you can do by browsing through our pages here at National Debt Relief), we will give you 10 myths that commonly confuse people about them.
Myth 1: Credit counseling and debt management are the same.
Simply put, debt management is simply a part of credit counseling. While they can mean two different processes, credit counseling the more prominent one. You can get credit counseling without debt management, but you cannot do the latter without going through the former. Credit counseling involves a credit counselor who will help you create a structured plan to solve your credit problem. Debt management is one of the processes that they can use to actively take part in your debt payments.
Myth 2: Debt management can lower your debt amount.
Some people think that debt management can lower their overall debt amount when in truth, it does not. What this program does is create a debt management plan that will stretch your current balance over a longer payment period. This results in a lower monthly contribution. But if you total the amount that you have to pay, it is still the same.
Myth 3: Debt consolidation loan saves you money on interest.
Debt consolidation loan seeks to combine your debts under one lender. This is done by borrowing a low interest loan that you will use to pay off your multiple high interest debt. While you will aim for a low interest loan, you have to understand that you will be stretching your debts over a longer payment period. If you compute the low interest amount over a longer period, that can end up being most costly than your current high interest rate. The longer your payment plan is, the more you will pay towards your interest rate.
Myth 4: Debt consolidation loan cannot be done without a collateral.
As mentioned the aim of debt consolidation loan, just like all the other debt relief programs, is a low interest rate. If you will get a loan to pay off your debts, a secured loan that requires a collateral will give you the lowest interest rate. But that does not mean this is your only option. You can use debt consolidation loan even if you do not have a collateral. You can use a personal loan but you need a good credit score to get a low interest on that loan.
Myth 5: Professionals will give you better results.
This actually depends on you. Debt professionals are trained experts but that does not mean you cannot accomplish what they can do. Some people have actually gone out of debt through their own efforts. But if you know that you cannot do it on your own, then go and hire a professional. You just have to be careful about who you will trust with your debt problem. The FTC.gov, the website of the Federal Trade Commission, reveal that the most reputable of the credit counselors usually come from non-profit organizations. They can offer their services through phone, online or personal meetings.
Myth 6: Debt consolidation and debt settlement are the same.
Another myth about debt relief programs involve the confusion between debt consolidation and debt settlement. These are two different programs. The first involves combining your debts under one easy payment plan. The other, debt settlement, is mostly about debt reduction.
Myth 7: Debt settlement is the fastest way out of debt.
This actually, may or may not be true. Debt settlement involves negotiating with your creditors to allow you to pay off only a portion of your debts because you are in a financial crisis. If they agree immediately and you have the money to pay the debt in lumpsum, then you will get out of debt faster than you think. But if they drag it out because they do not want to agree to your settlement proposal, then your debt freedom will come a bit later.
Myth 8: Debt settlement is always better than bankruptcy.
A lot of financial experts will tell you to aim for debt settlement to avoid bankruptcy. Both of them will give you debt freedom but at the cost of your credit score. Between the two, bankruptcy will bring the most damage to your credit report. But even if that is true, there are cases when your financial situation is better off with bankruptcy. Debt settlement will still require you to pay a portion of your debts. If you are really financially hard up and you have no income coming in, bankruptcy is your best option.
Myth 9: Bankruptcy will save you from paying back your debts.
Here is another misconception about the bankruptcy procedures. People often think that if you are proven to be financially incapable of paying your debt, you don’t have to pay for anything. While you will not pay your dues in full, there is still some form of payment involved. If you land a Chapter 7 bankruptcy, your assets will be liquidated and used to pay off your debt. What cannot be covered will be discharged. In Chapter 13, you will go through a court-ordered repayment plan that will require monthly cash contributions.
Myth 10: Bankruptcy can ruin your future.
This is the myth that gives bankruptcy a notorious reputation in the financial industry. While there are damages in your life and financial records, it is not the end of the world. In fact, some people consider this as starting on a clean slate. A broken slate, but a clean one nevertheless. Bankruptcy does not mean you will be tainted for life. This record will only stay with you for the next 10 years. In fact, you can find yourself able to get a loan in a few years time – at least if you take care of your credit this time.
How to choose the right program for debt relief
Now that we have cleared up these myths, let us help you make the right choice. Debt relief programs are effective but you have to choose the right one. Here are 4 important questions that you have to ask yourself.
What type of debts do you have? The first question that you need to ask yourself involves the type of debts that you owr. According to the NewYorkFed.org, the top credits by the end of 2013 include mortgages ($8.58 trillion), student loans ($1.08 trillion), auto loans ($0.86 trillion) and credit cards ($68 trillion). All of the debt relief programs can usually solve credit card debts. However, the other three are not the same. For instance, they cannot use debt settlement. In bankruptcy, only student loans cannot be solved. Debt consolidation loan can typically deal with all of these credit accounts. Understand the type of debts that you owe so you will know the right program for your financial needs.
How much can you afford to pay every month? Start by using a budget plan before you choose the right debt solution. If you can afford to pay for the whole debt, you can opt for debt consolidation. If your income is lower than before, you need debt reduction and that involves debt settlement or bankruptcy.
Do you have a steady income coming in and can you grow it? If you can grow your money, at least until you have paid off your debts, you may not have to opt for debt settlement or bankruptcy. That way, your credit score can remain intact when you achieve debt freedom. But if you know that your financial situation will not improve soon then it may be best to consider debt reduction.
- What are you willing to sacrifice to gain debt freedom? Lastly, you may want to ask yourself what you are willing to give up just to achieve debt freedom. It can be your credit score or your time. If you don’t mind having your score pulled down, then opt for debt settlement or bankruptcy. If you don’t mind sacrificing your time, then just work longer hours and opt for debt consolidation.