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Learn About Debt Consolidation and Other Types of Relief Programs

Learn About Debt Consolidation and Other Types of Relief Programs

Millions of Americans struggle with debt. It can be especially difficult to manage if you or your spouse have recently become unemployed.

Residents wind up in debt due to various reasons and circumstances. Unexpected medical costs, emergencies and uncontrolled credit card usage can all lead to debt.

Lack of financial management skills combined with low income or financial hardships can quickly deepen debt. 

Fortunately, there are several approaches that you can take to manage your debt. Most of the methods mentioned in the sections below involve obtaining professional help, but some you may be able to do on your own.

Furthermore, it is important to understand that there are advantages and disadvantageous to each approach and there is not a one-size-fits-all solution.

When it comes to financial solutions, the best is the one that works for you and your family. Read further to learn about the various debt relief strategies that you can implement. 

What is Debt Consolidation?

One method that you could utilize to alleviate debt is to consolidate your debt. This may be the right method for you if you have several sources of unsecured debts.

This includes lines of credit, department store credit cards and personal loans. Auto and home loans do not qualify. 

Debt consolidation is ideal if your total debt is less than 40 percent of your income. However, it may not be the right choice for you if you have a very high amount of debt.

Additionally, this method can significantly decrease your credit score. So if you are looking to make a large purchase any time soon, such as buying a home or car, consolidating your debt may not be the best option.

However, while it is difficult, there are ways to buy a home with bad credit.

To begin the debt consolidation process, you will need to contact a company that specializes in debt consolidation.

This is because it can be difficult to obtain favorable terms with creditors without professional assistance.

Then, once an arrangement is made, you can begin making one single payment that is more manageable and at a lower interest than your previous payment.

Furthermore, this payment will be made to the debt consolidation company to disperse to your various creditors. 

Learn About Debt Relief Through Bankruptcy 

Bankruptcy for many is a last resort when it comes to overcoming debt. Financial and debt counselors usually consider other possibilities such as debt settlement or modified payment plans before suggesting this option. 

This approach to resolving debt issues is often considered drastic because you may lose many of your assets in the process. In addition, bankruptcy will remain on your credit history for 10 years.

This can make acquiring new lines of credit, a mortgage or car loan difficult. 

If you are unemployed and have not found any other debt relief option to be right for you, bankruptcy can be a fresh financial start.

However, you will have to qualify and prove that you cannot repay your debts. When filing, you can choose either Chapter 7 or Chapter 13 bankruptcy. 

Chapter 7 is what most residents refer to when thinking of bankruptcy. Under this option, your assets will be liquidated in order to pay off creditors.

On the other hand, Chapter 13 bankruptcy enables you to keep your assets. However, you will still be required to fully or partially repay your debts.

This may seem like the more favorable option, but you may not qualify if you earn a low income. 

How to Pay Off Debt with Mobile Apps 

If you are not ready to contact professional credit or debt counselors, you may want to try mobile apps that are designed to help you manage your debt and finances.

One or several of these apps can help you visualize your financial situation so that you can figure out the best strategy for you. 

One type of app that can help with paying off debt is the type that collects spare change from debit purchases.

Apps like Qoins rounds up each purchase you make from your checking account and uses that change to pay things like credit card bills.

Utilizing an app like this can significantly assist you in paying off your debts as it is automatic and much cheaper than a financial advisor. 

On the other hand, you may prefer a more hands-on approach to your debt repayment. The app Debt Manager allows you to create different scenarios and solutions for debt repayment.

After inputting information about your debts, you can select a common repayment method such as the avalanche or snowball method.

Whichever method is suitable for you, this app also enables you to track your repayment progress. 

Find Out About Debt Management 

Debt management plans are similar to debt consolidation. These plans are created through a credit counseling agency.

They involve making one single payment to the agency rather than your creditors. The agents create a repayment plan for you that is more manageable.

In addition to reducing the amount of payments you need to make, the interest rate will also be lower. 

Unlike debt consolidation plans, debt management does not involve taking out a loan. As a result, you do not need a good credit score to participate in this type of program.

However, your credit score may be impacted as you are required to close the majority of your credit card accounts.

Reducing your amount of credit available will negatively affect your credit report, which is what most lenders look for before giving you a loan. 

Moreover, this approach to handling debt is strict. You must consistently make your agreed-upon payment monthly or risk the plan being voided.

However, your debt management agent can provide a variety of helpful resources, tools and tips to prevent future financial hardship. 

Learn About Debt Settlement 

Debt settlement is a repayment option in which creditors agree to collect less than you owe them.

Additionally, they will cease collection calls and will not be able to sue you over unpaid debts. Often, debt settlement is viewed as the next-best option compared to bankruptcy.

While this may seem like a favorable agreement, it can also devastate your credit score. 

Beginning the debt settlement process involves contacting a debt settlement company and explaining your situation.

Then, agents contact your creditors and negotiate a new, reduced payment plan. Once a payment plan is set, you begin sending your regular credit payments to the debt settlement company to store in a savings account.

Eventually, the funds saved in that account will be used to pay the creditors in a lump sum. 

This method will significantly harm your credit as your will be missing your regular payments to creditors.

These late payments will remain on your credit history report for seven years and can make it difficult for you to obtain new lines of credit, purchase a home or obtain employment.