Living in debt holds you back in many aspects of your life. Working your way out of debt requires discipline and a solid plan. Fortunately, there are many options available to you when it comes to debt relief that can make working your way out of debt a much easier task. Don’t feel you have to tackle your debt problems alone because there are many debt relief options available to take advantage of. This blog post looks at five different debt relief options and how they work!
1. Paying Your Monthly Balance
This is the most obvious and least complicated form of debt relief. The goal of paying your monthly payment is to pay off at minimum more than your minimum payment requirement. If you only pay the minimum, you’ll spend forever trying to pay down your debt. This form of debt relief is good because it prevents your credit score from being hit as long as you pay on time. Another benefit is you won’t have to pay any late fees or additional interest.
The best way to tell if this form of debt relief is right for you is if you have enough income to take care of your bills and pay more than your minimum payment every month. However, if you don’t have enough each month after necessary expenses, you may have to move on to a different option.
2. Debt Settlement
Debt settlements companies negotiate on your behalf with the business you owe money to. Debt settlement/relief agencies can help you get lower monthly payments for your debts; however, there are severe penalties if you start missing your payments.
The key to making debt settlement work is to find an excellent negotiator and be honest with them about your finances. Debt relief officers need a clear picture of your finances so they can organize a deal that makes sense for you. When done correctly, you can make a significant impact on your debt without compromising your quality of life or your ability to cover expenses.
3. Consolidation Loan
Debt consolidation is also a popular option when it comes to debt relief. Consolidation loans combine your debt in one single payment that you make on a monthly basis. Debt consolidation loans can also use your home equity as a part of the term which means you’re putting your home on the line.
With debt consolidation, your monthly payments are significantly lower however you can’t afford to miss any payments. Consolidation will initially have a negative effect on your credit score especially if you begin to miss payments. Consolidation loans only make sense if the monthly payment is lower than what you would be paying for each debt individually. Make sure you crunch the numbers and ensure this option is right for you.
Bankruptcy is the most severe form of debt relief. Essentially bankruptcy is when you declare that you are completely unable to pay your debts. Bankruptcy puts your assets such as your home and car at risk of being taken away from you by your creditors. Bankruptcy has severely drastic effects on your credit score, report, and history.
5. Debt Management
Debt management or credit consoling is when you enroll in in a program that provides you with debt counseling. Debt management companies will work with you to consolidate your debts and control the finances you have allocated for your debts. Debt management agencies can help you get lower interest rates by negotiating with your creditors. This is similar to debt settlement but a more involved process. The main difference is the debt management company works with you to eliminate your bad financial habits that are keeping you in debt.