Various types of debt relief services exist to help people resolve problems related to debt. Each program has advantages and disadvantages that need to be taken into account. Options for debt relief include credit counseling, debt management and debt settlement.
Debt relief becomes necessary for many confronted with mounting consumer loan debt for a variety of reasons. This can stem from overindulgent spending, lack of budgeting and a reduction in income due to job loss or illness. Unfortunately, it doesn’t take much to interfere with making timely payments. Debt relief services seek to get individuals and families back on track financially.
Choosing debt relief services involves understanding the purpose and goal of each type of program. Consumers also need to pay attention to the fine print regarding topics such as fees. While a debt relief program of any kind won’t immediately improve a consumer’s credit rating, and may even lower a consumer’s credit score, the benefits of getting a handle on debt before it snowballs into legal issues, foreclosures and repossessions can outweigh the short-term downfalls.
Credit counseling is one of the various types of debt relief services. Counselors assist clients with creating a manageable budget and often help negotiate payment plans with creditors to help get clients back on track. This type of debt relief program works well for those who have a hard time managing money and are capable of repaying most of their debt once new payment arrangements have been made to get them current on debt.
Debt management plans are offered to help consumers who find themselves unable to pay their debts. With a debt management plan, a counselor negotiates payment arrangements with creditors, often requesting lower interest rates, balance reduction and removal of late fees, to help lower a consumer’s overall burden of debt. Then customers make payments directly to the debt management plan. The agency is then responsible for paying all creditors as agreed. Depending on how much debt needs to be repaid, plans can take years to pay off and consumers are usually restricted from applying for credit during their enrollment in the plan.
Debt settlement plans are another option for debt relief services. These plans attempt to reduce the overall debt through a settlement with creditors. This type of debt relief program can have a damaging effect on credit scores and can leave a consumer open to consequences, such as paying taxes on the portion of debt that was forgiven.