Understanding debt relief and your options.
Are you trying hard to pay off debt, but not making progress? If you have made real efforts to pay down your debt but can’t seem to make a dent, you may benefit from debt relief. Debt relief options are financial tools that can change the terms or the amount of debt a person has. While that might sound amazing to someone with overwhelming financial obligations, debt relief can come with consequences. Learn about the different types of debt relief options and if they are right for you.
When should I consider debt relief?
Ask yourself a couple of questions to determine if you should consider debt relief:
- Does the total of your unsecured debt equal half of your gross income or more?
- Do you have a lot of unsecured debt (credit card, personal loans, medical bills) that you have no chance of repaying within the next five years, even if you cut out all unnecessary expenses?
If you answered yes to any of these questions, then debt relief could provide financial relief. However, if you think you can pay off your major debt in five years, you might consider alternatives like strict budgeting, debt consolidations or appealing to your creditors.
What is bankruptcy?
One well-known debt relief option is bankruptcy. It’s wise to speak to a bankruptcy attorney before you launch a debt relief strategy. An initial consultation with a bankruptcy attorney is usually free. They will help you determine if you qualify for bankruptcy.
There are different types of bankruptcy. The most common type of bankruptcy is Chapter 7 liquidation. This type of bankruptcy filing can erase most credit card debt, medical debt, and unsecured personal loans. If you qualify, you could erase these types of debt in three to four months.
Chapter 7 bankruptcy will not erase tax debt or child support. It also won’t likely erase your student loan debt. You can only file for Chapter 7 bankruptcy once every eight years. If you have property you want to keep, Chapter 7 bankruptcy is probably not a good option if your property isn’t exempt from bankruptcy. You usually have to part with second vehicles, vacation homes, valuable collections and even family heirlooms. Filing for bankruptcy will also drop your credit score, making it difficult to gain access to credit or funding in the near future.
Another common type of bankruptcy filing is Chapter 13. If you file for Chapter 13 bankruptcy, you will be given a three- or five-year court-approved repayment plan that is determined by your income and amount of debt. If you follow the rules of your repayment plan and make good on your payments, unsecured debt that is left over is discharged. The benefit of Chapter 13 bankruptcy is that you can keep your property.
What are other debt relief options?
Debt Management Plans
One alternative to filing bankruptcy is a debt management plan through a credit counseling agency. A debt management plan can help you pay off unsecured debts by reducing the interest rate or waiving fees. Borrowers make a single payment each month to a credit counseling agency to be distributed among creditors. Choosing this option means living without credit cards while you complete your plan. Entering a debt management plan will most likely negatively impact your credit score because your credit accounts will be closed. However, once your plan is completed, you can apply for credit again and begin rebuilding your score.
Make sure to choose a credit counseling agency that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. It’s also vital that you reach and understand the terms of your debt management plan including what fees you will owe.
Debt Settlement
Another debt relief option is debt settlement. Debt settlement is the final option for borrowers facing overwhelming debt who don’t qualify for bankruptcy. If you choose debt settlement, you will give any funds you have for debt repayment to the debt settlement company to put into an account they control. Your debts will continue to add up and your creditors will go unpaid. The goal is to make your creditors fear they won’t receive any repayment and make them more willing to accept a smaller lump-sum payment instead of the entire amount.
During this time, you can receive collection calls, penalty fees and even legal action against you. This will last through negotiations. It can take four to six months for settlement offers to go out. The process could take years depending on how much money you owe. Your credit score will be damaged during this process. In addition, you could receive a bill for taxes on the forgiven amounts as the forgiven amount is considered income by the IRS. Any lawsuits against you could mean wage garnishments or liens on your property.
What is an alternative to debt relief?
If you are looking for help managing multiple debts, debt consolidation might be a good option for you. It can be challenging to manage multiple types of debt including credit cards, personal loans, medical debt and so on. By consolidating your debt into one loan, you can have one monthly payment with one interest rate. This can help you better manage your debt. Some debt consolidation loans can even lower your interest rate or monthly payments.
If you are looking to consolidate debt, consider a personal loan from Uprova. You can request a personal loan of up to $5,000 to consolidate your high-interest debt into one loan with one monthly payment. You can check your rate at Uprova.com without impacting your FICO credit score. You can use this rate to determine if consolidating your other debts into one personal loan makes sense.
Summary
Debt relief is available to consumers with overwhelming high-interest debts who meet certain criteria. Debt relief options include bankruptcy, debt management and debt settlement. All three types of debt relief will negatively impact your credit score, but they can provide financial relief. Debt consolidation is another approach to paying off debt faster. One way to consolidate debt is by lumping multiple debts into one personal loan. Get the financial relief you need at Uprova.com today.