Learn About Debt Relief: What It Is And When You Should Seek It

Credit Counseling

Meeting with a credit counselor to examine your budget, debt, and finances is what credit counseling entails. A credit counselor can help you analyze your expenditures and obligations and then develop a specific management plan.

Consulting with a credit counselor may be an excellent option if you simply need assistance in developing a feasible debt repayment plan. A credit counselor may also assist you in educating yourself on fundamental budgeting concerns that may have led to your extra debt in the first place.

Many non-profit credit counseling organizations provide their services for free. Check the accreditation status of the agency, as well as the credit counselor’s certification status, with the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

Debt Management Plans

A debt management plan may be recommended if you work with a credit counselor or a debt relief program. A debt management plan, often known as a DMP, works as follows:

• You decide which debts to include in the software.

• Each month, you make a single payment to the debt management plan,

• That payment is distributed among your creditors according to the plan’s terms.

Debt management plans are similar to debt consolidation because they require only one payment. However, you are not required to take out a loan or acquire a balance transfer credit card to participate in this type of debt relief program. Furthermore, depending on the program, you may be able to lower your interest rate or have some costs waived.

While you may receive lower interest rates or fee relief under the conditions of a debt management plan, you must still return the total principal amount outstanding.

Debt Settlement

Debt settlement is regarded as a last resort. It enables you to pay off debts for less than the amount owed. Any outstanding payment is eliminated if your creditor agrees to a debt settlement. This is practically debt forgiveness because you are not required to repay anything more than the agreed-upon settlement sum.

If you have the cash to pay your creditors and are comfortable dealing with them one-on-one, you can perform debt settlement on your own. Debt relief businesses will also bargain on your behalf.

This, however, usually entails paying a charge to the company that is assisting you with loan or credit card debt relief. Also, remember that a creditor would usually consider settling a debt if you are past due.

As a result, debt settlement can be more detrimental to your credit score than other debt relief solutions. For example, if you deal with a debt settlement company, they will urge you to make payments to a separate account they will set up instead of paying your individual creditors.

This will result in you being past due with your creditors for some time, which will harm your credit. Debt settlement can also have income tax ramifications, whether done through a debt settlement firm or on your own, because the amount of debt forgiven is likely to be taxable.