The phrase debt relief is used frequently and may mean many things. In realistic terms, debt relief is a way to get you out of hot water, through budgeting, contacting your creditors, debt consolidation, or filing bankruptcy. However, it is important to realize that in advertising terms, debt relief is synonymous with bankruptcy: many financial firms that advertise “debt relief” may be planning to usher you straight into bankruptcy court.
If you need debt relief, there are several different options available to you. If you believe your financial hardship is temporary, you can contact your creditors and explain the situation to them. If the account has been in good standing in the past, chances are the creditor will agree to temporarily suspend your payment obligations. Such a favor doesn’t come without cost, of course: when you start making payments again, they’ll likely be higher to compensate for the past due amount. However, a few months of debt relief may help you get back on your feet, and may be well worth the cost in the long run.
Keep in mind that if you’re having difficulties making your bills, it’s important to talk to your creditors early. If your account is not in good standing, they’re less likely to be understanding; and if debt collectors are already involved, chances are it’s out of the creditor’s hands. Don’t wait until your debts are out of control before you seek help!
If you simply are having a hard time buckling down and paying your bills each month, “debt relief” might involve making a budget for yourself. Set aside a portion of your monthly income for each expense you know you’ll have, and an extra amount as a cushion to fall back on for any unexpected expense. What’s left is “fun money.” For a budget to work, it’s important to know exactly how much you can spend on entertainment – and to stay within that amount at all costs.
Another option is to pursue credit counseling. If you know that you don’t have the discipline to make a budget and stick to it without help, this may be an option for you. The counselors will be able to teach you tactics for managing your finances, but be careful not to inadvertently choose a shady organization that is out to get what money you have left! If budgeting or credit counseling is pursued, you may find that “debt relief” also means finding a way to afford your bills, instead of letting them run your life.
Debt relief can also be found in debt consolidation. Debt consolidation takes all of the debts that you have, such as on loans or credit cards, and lumps them into one large loan. The advantage is that, especially when the debt consolidation loan includes a car or a home, you can get considerably lower interest rates than you would on your credit cards or an unsecured loan. Your monthly bills will be consolidated into one payment that won’t change over the next few years.
In order to attain debt relief via debt consolidation, your credit must be in good standing – so, again, it’s important to take action early, before you amass a track record of late or outstanding payments. You might be able to find a creditor who will qualify you for a loan despite questionable credit, but you will undoubtedly be stuck with a higher interest rate. Higher interest rates mean higher payments, and this could cause your plan to backfire if your goal is to reduce your monthly payments.
Bankruptcy as a form of debt relief should only be used as a last resort. Bankruptcy adds to your credit report a serious black mark against you, and that black mark will remain for a number of years. There are also limits on how frequently you can declare bankruptcy.
There are two types of bankruptcy. Chapter 7 wipes out all of your debts, but also takes your car, home, and anything else that creditors can claim in recompense for your unpaid debt. Chapter 13 allows you to keep your possessions, but you’ll have to set up a long-term payment plan that the court approves. Remember that although either form of bankruptcy may provide the debt relief you require, the consequences of filing for bankruptcy will follow you for some time to come.