People who are having financial troubles due to mounting debt can only recover if they make a firm decision to take action. This decisions should be partnered with determination to ensure that they will complete whatever debt relief option they set out to do.
Achieving financial freedom is not a one way path. There are various options available for the average debtor and each of them has their own pros and cons. When you get the help of a financial expert or a credit counselor, they will tell you of the best option that is not only agreeable to you but also acceptable to your creditor.
While a particular option seems like the best option that will provide you with the best savings, you have to consider that it is your creditor who will be losing money out of any option.
To help you decide, here are the 5 different debt relief options that you can consider to attain the ultimate financial freedom.
There are 5 primary options for debt relief. You may read about others but all of them will fall under one of these 5. These are developed through the combined efforts of the federal government, lending institutions, non profit organizations, individual debtors and credit card companies. Any of these will lead you to a debt free life but they have various effects on your finances, credit report and history. You need to approach each one with caution and careful analysis.
Before we go through them, you need to consider carefully the need for professional help. One or two of these options will require the help of a debt relief expert. But for those that does not have that need, you may want to get at least a financial adviser. There are several non-profit organizations that are duly endorsed by the federal government. They have a roster of financial experts and credit counselors that you may want to talk to. This is needed to address the root cause of your debt problems, which is poor financial management and bad spending habits.
All these options should begin with a budget plan. This can be done for you by a financial expert or you can do this on your own. It involves taking your income, total debt, monthly minimum payments and basic necessity expenses. The aim for a budget plan is to take away the basic necessity expenses from your income to determine the amount that you can afford to use to pay off your debts. Let us refer to this amount as your debt payment fund.
5 Primary Options for Debt Relief
Now that we have covered that, let us discuss the 5 debt relief options that is available for you.
Paying the Monthly Balance
The first of the 5 debt relief option is the most obvious and less complicated. It involves a disciplined way of paying off your debt on a monthly basis. The goal here is to pay off at least the minimum payment requirement. But to succeed in this, you have to aim for paying more than that amount. Otherwise, it will take you a really long time to finish.
The great thing about this option is you will not be burdened by late payment fees and high interest rates. And if you maintain the habit of paying on time, your credit score will not be hit. Although, it will take you a really long time to finish paying your debts, unless you can pay off more than the minimum.
To be able to increase your ability to pay, you may want to consult your budget plan and see if your debt payment fund is enough to cover your minimum payment requirements. If it is more than that, consider paying off the high interest rate debts with a higher amount than the minimum. However, if the amount is not enough to cover that, look into your expenses and see where you can save further. If it is not working, you can proceed to option number two.
The next option that has become increasingly popular is the debt settlement method. This involves the help of a debt settlement agency or a debt relief company. The idea is they will negotiate on your behalf so the creditor will agree to a lower outstanding amount that you have to pay. This is usually a certain percentage of your original balance. When you have paid that off and you do so diligently, the rest of the debt will be forgiven.
The process will begin with an analysis of your financial capabilities. Once the negotiator has an idea of how much you can afford to pay, you will be asked to deposit payments in an insured financial institution. You will stop paying the creditor while doing this. When the creditor realizes that you have stopped paying and sues you in court, the negotiator will step in with a proposal for a debt settlement.
While you are involved in a debt settlement agreement, expect that your credit report will be affected negatively. But it will soon pick up after you have settled your debts.
The key to succeeding in this the hiring the best negotiator to be your champion. While you can do this yourself, the expertise and negotiating skills of a debt relief expert will go a long way to achieve more than what you can. Besides, if you choose a company that has been working long in this industry, you may benefit from the working relationship that they have with the creditors and collection agencies. It will increase your chances of getting a favorable debt settlement.
A legitimate debt relief company will not represent debtors who only wish to swindle credit companies by pretending they are unable to pay for the whole outstanding balance. So you need to be really unable to pay off the minimum payment – otherwise you may find it hard to get a respected debt settlement company to help you.
Debt Consolidation Loans
Another option for debt relief is debt consolidation. This involves putting all your debts in one loan so you only pay for one. The aim here is to remove the high interest debts and maintaining only one payment every month. The most popular kind of debt consolidation loan is the home equity loan. This means you will be putting your home on the line.
The benefit of this debt relief option is easy management of debts because you only focus on one payment. You should only opt for this if the monthly payments are lower than the total of the first option that was discussed earlier. Otherwise, you will just be fooling yourself with this option. Another consideration is your credit score. This will also have a negative effect on your credit report. But it will soon pick up after you have settled your debts and have diligently paid for them on time.
It is also important to keep yourself in line because again, your home is at stake in case you are unable to pay for your debt. Stick to your budget plan and the payment terms of the new loan that you will take out.
The fourth debt relief option is known as debt management or Â credit counseling. This involves enrolling in a program that will provide you with debt counseling. It works the same way as a debt settlement but the funds will be handled by the debt management company. They will consolidate your debt and pay off your creditors for you – getting the payments from the account that you will be funding of course. They will also help you lower the interest rate, monthly payments and the outstanding balance by negotiating with your creditors. This will also affect your credit report so do not be surprised if you find your score lower than before.
The difference from the debt settlement company is they will provide you with counseling services too. They will help take out the root of the problem – your bad spending habits.
The last and least desired option by debtors and even financial experts and creditors is bankruptcy. This is when you are declared completely unable to pay your debts. A bankruptcy court is involved here and your assets are in danger of being taken from you by your creditors. Even that is not assurance that your assets will be able to pay your creditors in full.
This option will have a very drastic effect on your credit report, score and history. In the event that you will need financial aid, your chances of getting one is very slim.
Also, it is not a guarantee that you will not pay off your creditors. The bankruptcy judge will rule if you are qualified for a Chapter 7 or Chapter 13. Chapter 7 means you will be forgiven of the whole debt while Chapter 13 involves payment for a percentage of the debt.
NationalDebtRelief.com is a debt relief company that serves people who are deep in debt and seeking for financial freedom. Give us a call, chat with us or fill out the form on this page. We will be very happy to help you with your debt troubles.