According to a Federal Reserve report, total consumer debt rose to $14.6 trillion at the close of 2020. CNBC reports that the average American is $90,460 in debt. These numbers can seem too big to climb back from, but with debt relief companies and debt relief options, there may be hope.
In this article, we will share everything you need to know about pathways to help get you out of debt. From debt relief companies to consumer credit counseling, it is possible to get back to good financial standing.
What is Debt Relief?
Debt relief is the act of a borrower convincing a lender to reduce the amount of money they owe (debt) to an amount that the borrower can afford to pay, which is indicative of relief.
Debt relief can occur when a lender lowers the principal amount, the interest rate, or monthly payments. It could also come down to renegotiating the term length of repayment. No matter how you slice it, debt relief may end up providing the borrower with a feasible plan to get out of debt.
We’ll get to various debt relief options, but before that, let’s touch on debt relief companies as they can serve as a middleman to negotiate with your lenders.
What Do Debt Relief Companies Do?
Debt relief companies are a type of for-profit business that act on a borrower’s behalf to negotiate with lenders to reduce debt. The main goal of a debt relief company is to get a lender to lower the amount owed in exchange for debt settlement.
To do this, debt relief companies may take the route of having you stop making your payments, and instead, may advise you to put that money into a savings account (which may incur fees). Then, the debt relief company will approach your lenders for the negotiation of repayment using the money you’ve accumulated in the savings account.
What is Consumer Credit Counseling?
On the other hand, you may instead opt for consumer credit counseling. Consumer Credit Counseling Services (CCCS) agencies are all 501(c)(3) nonprofits. They work to aid consumers in managing their debt by providing free consultation and then determining what method will be best to repay your debts.
Sessions may include: budgeting assistance, action plans, credit report reviews, educational materials and workshops, and more.
Government agencies and programs, grants, and consumer fees support CCCS so that they are able to provide free or relatively inexpensive services to the public.
When To Seek Debt Relief
If you’re in debt, but are unsure of when the right time is to seek debt relief, consider the following:
- If you’re total unpaid unsecured debt is equal to 50% or more of your gross income, it may be time to seek relief
- If you feel hopeless in your ability to repay your unsecured debt within five years, you may want to consider a debt relief option
Debt Relief Options to Consider
There are a variety of debt relief options to consider. For every individual, the right plan will be different and is related to how much debt you owe and the interest rates on your debt.
Debt consolidation
If you have multiple loans or lines of credit to repay, debt consolidation could be of use. With debt consolidation, you combine various debts into one. You could do this by taking out a personal loan or using balance transfers on credit cards. For example, if you have debt, you could open a low interest rate or 0% interest rate credit card and transfer your debt balances to the card. Then, you repay the credit card company with the amounts you owe.
Debt management program
A debt management plan (DMP) is similar to debt consolidation because you work out a way to only make one payment (but this option doesn’t require taking out a loan or opening a balance transfer credit card). Instead, DMPs provide you with the option to choose what debts to enroll in the program and the payment will be distributed across your creditors based on the plan. The upside is that you may receive better interest rates or a reduction of fees, but you will likely still end up paying the entire principal amount back that you owe.
Debt settlement
As one of the last resort options that is available, if you are past due on your payments, you could be able to make debt settlement work. Debt settlement means that you pay back your debts in full, sometimes for less than what you actually owed, granted that your negotiations go well. You can either negotiate directly with lenders to accept this option or hire a debt relief company to negotiate the settlement for you (remember, there may be fees associated with the latter option).
Bankruptcy
Declaring bankruptcy could be another way to remove debts associated with your name; however, it may not be as good as it sounds. Depending on how much you owe when you declare bankruptcy, it can stay on your credit report for 7-10 years. Bankruptcy may provide you with a second chance in your financial standing, but it shouldn’t be considered as a first option.
Budgeting
Naturally, you also have the option to manage your debts in the do-it-yourself method of budgeting and bringing down debt little-by-little. You’ll want to start off by cutting expenses, making payments on time (and preferably for more than the minimum amount owed), asking companies to lower interest rates as you work on repayment, and hopefully increasing your income at the same time. For more on how to pay back debts, even if you’re living paycheck to paycheck, read this guide.
How to Choose the Best Debt Relief Company
Should you choose to work with a debt relief company, there are some important factors to consider when making your decision of who to work with.
You’ll want to refer to the Better Business Bureau to review good and bad consumer reviews, review the CFPB’s website to see if there are any relevant complaints against the prospective company, and use consumer review websites like Trustpilot.com to gauge the trustworthiness of the debt relief company.
The Federal Trade Commission (FTC) also recommends that you don’t choose a company who will collect fees before settling your debts.
The Bottom Line
If you’re carrying debt, you should try to prioritize paying it off as soon as you can. With debt relief companies and debt relief options, it is a doable feat. In the event that you are unsure of where to begin, look up some Consumer Credit Counseling Services to see how they can assist you on your journey back to financial freedom.
While you’re working on repaying debt, you may need emergency cash fast or an installment l
While you’re working on getting your finances in order, you may find that you need emergency cash fast in the form of a short-term installment loan. Even those carrying debt often have poor credit, and so their loan options can be limited. Should this be the case, Cash Factory USA is still here to help those in a bind. See what Cash Factory USA can do for you!* Keep in mind that the use of short-term loans (especially high interest loans) is not recommended as a long-term financial solution. Customers with credit difficulties should seek credit counseling.
Cash Factory USA currently only provides loan services in the following states: CA, DE, ID, NV, MO, TX, UT, and WI.
Image(s) or Footage (as applicable), used under license from Shutterstock.com.