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How To Be Smart With Debt Relief

How To Be Smart With Debt ReliefDebt relief is the foremost concern for people who are deep in credit obligations. If you are struggling to meet your payments every month, you are in need of help.

What you have to understand is that there is no one solution for all types of debt problems. If you think about it, the challenge in being smart with debt relief is not in finding a solution, but in choosing the right one. To do that, you need to know what each program can do for you.

Before we can discuss how you can be smart with debt relief, let us define the different programs that you can use. We can classify it into two categories, the programs that will help you consolidate debt and those that will give you debt reduction.

Debt solutions that lead to consolidation

There are three programs that can help you consolidate your debt. These provide the following benefits:

  • Single payment scheme

  • Lower monthly payment

  • Lower interest rate

  • Longer payment term (except for balance transfer).

Here are the different types of debt consolidation programs.

Debt Consolidation Loan

This program is done without the help of a professional. The consumer gets a master loan that is big enough to pay for their other credit accounts. That way, the multiple debts are completely paid off and the consumer is left with only one payment everyone – which is for the master loan. In most cases, a good credit score and a collateral ensures a low interest rate that can lower the monthly payments of the consumer. To lower that even further, the consumer can choose a long payment period for their new loan.

Debt Management

Debt management is actually an extended version of credit counseling that begins with debt education. The credit counselor will help you analyze your finances and debt obligations to come up with a structured payment plan. If you wish to extend the service of the counselor, you can ask them to help you come up with a debt management plan that shows a lower monthly payment because of a longer payment term. This will be presented by the counselor to your creditor. Upon approval, you will send a single monthly payment to the counselor who will distribute it to your different creditors. The counselor will propose a lower payment term to the creditor but this it is not always guaranteed that they will agree.

Balance Transfer

A balance transfer is simply using a new card account to transfer the balance of your high interest debts. These new cards are usually offered with a zero interest introductory period. Any payment made towards the debt during this time will be deducted from the principal debt. That will help the consumer make better progress in paying down what they owe.

The thing about these programs is you will still end up paying for the total amount that you owe. That means you need to have a steady and stable income to support payments and it usually takes you longer to finish paying your debts.

Debt relief options for debt reduction

On the other side, you have the programs that will help you reduce your debts. This will provide the following benefits:

  • Lower monthly payment

  • Reduction of debt balance

  • Forgiveness of a portion of the debt

  • Faster debt relief

Here are the two types of debt reduction programs.

Debt Settlement

This program may or may not involve a debt professional. The goal is to convince the creditor to allow you to pay only a part of your debt and have the rest forgiven. To do this, you have to default on your payments deliberately. You want the creditor to believe that you can in a financial crisis. Instead of sending payments to the creditor, you will put it aside and grow it as your debt settlement fund. Once it is big enough, you will offer it to the creditor and ask them to forgive the remainder of your debt if you can send them this one lump sum payment. In most cases, they will agree but you have to be patient because the creditors may drag this out.


Another way to achieve debt reduction is through bankruptcy. You will be subjected to the means test that will determine if you will qualify for either Chapter 7 or Chapter 13. In the former, all your valuable assets (except those included in the exemption list) will be liquidated and sent to your creditors. Anything that is left unpaid with will be discharged. The latter is a lot similar to debt settlement. You will be subjected to a repayment plan that will pay only a portion of what you owe and have the rest forgiven.

Since this has a debt reduction, it will have a negative effect on your credit score. And this is only ideal for those who are in a real financial crisis.

Different criteria in selecting a debt relief program

In choosing a debt relief option, you need to satisfy a couple of criteria: the type of debt that you owe, your financial capabilities to pay off the monthly requirements, the debt relief program requirements and your financial goals.

Type of debt

Most of unsecured debts can be solved by any of the debt relief programs. For secured debts, there is only a handful of programs that can accommodate it like debt consolidation loans and bankruptcy. You need to identify if your debts can be solved by the program you are eyeing before you proceed.

Financial capabilities

You also have to look at your ability to pay off your debts. If you can manage your minimum payments, you can stick with debt consolidation programs. But if not, you may want to aim for debt reduction. Do not force it if you are only financially qualified for bankruptcy because it could leave you with more debt than when you started. If you wish to get help, you can use the debt calculator of National Debt Relief. There are also available calculators in or

Debt relief requirements

Each of the programs have their own requirements. For instance, debt settlement and bankruptcy will require you to be in a real financial crisis. In debt consolidation loan, you need either a good credit score or a collateral to get a low interest on your loan. In any of the debt consolidation programs, a steady income is needed for the payments (which was mentioned already earlier).

Financial goals

The last consideration is your financial goals. If you want to build a business or buy a home after you deal with your debt problem, you want to maintain a good credit score for that. If that is your future plan, you should choose a debt relief program that will take care of your score. That means debt reduction is out of the question.

Finding the right program is not that difficult but as you have discovered, there are several details to consider. Knowledge will be your best arsenal to succeed. To know your rights as a consumer you should also beef up your data bank on consumer laws through the Federal Trade Commission. This will help you in the event you need to face creditors on your own.

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