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Debt is an issue that can spiral out of control in a short period of time. The only real way to tackle rising debt is to take action. Although it can be incredibly difficult to face up to the fact that you’re in trouble, the sooner you take steps in the right direction, the better. Many of us are ostriches when it comes to our finances, but being honest and open is the first step to overcoming debt. When you start to take incisive steps, you’ll realize that there is help out there and there is a way out.
There is no universal solution for debt, and there are various paths you can take on your way to moving from the red to the black. Some solutions will be more suited to certain individuals than others, and this is why it’s beneficial to do some research, seek advice and consider the avenues that are open to you. When you see an expert, they can recommend options that will be viable for both you and a creditor if this is applicable.
If you’re considering seeking help for tackling debt, here are five of the main debt relief options that may be recommended for you.
Debt Relief Options
Paying Off Your Debt In Monthly Installments
One of the most simplistic means of approaching debt relief is arranging to cover outstanding payments over a period of time by using monthly installments. With this method, you pay an amount every month with the aim of paying off the balance in a time period, which is viable for you and the people or organizations you owe. You could aim to cover the minimum payment each month, but ideally, you should try and pay off as much debt as you can to reduce the time it takes you to become solvent again.
One of the best aspects of this system is that you won’t be subjected to fees or penalties, which will serve to increase the amount you owe. If you can keep up with payments and show that you are capable of paying money back on time, this will also ensure that your credit score is not impacted.
If you’re considering this option, it’s hugely beneficial to check your budget and make sure that your debt fund will enable you to cover the required minimum payments. If you can’t afford to pay everything off, prioritize debts with the highest interest and those that may incur additional fees.
Debt settlement is an increasingly popular option. This way of combating debt involves enlisting the services of a debt relief agency to negotiate with creditors on your behalf. The aim is to try and reduce the amount you owe and to come to an arrangement, which enables you to cover the agreed cost and write-off the rest of the debt. The agreed total is usually a percentage of the original debt.
In order to negotiate on your behalf, a debt settlement agency will take a look at your finances and work out how much you could afford to pay back. Once your financial situation has been established, you will start putting money into a secure account, and when the creditors realize that you have stopped paying them, the negotiator will step in and try and identify a solution that suits both parties.
It is important to note that this approach is likely to have an adverse impact on your credit rating. However, once you have paid back the debt, your score should increase.
It’s incredibly important to choose the right company to represent you. Search for agencies that have extensive experience in the industry, as they are likely to have positive relationships with creditors, which could help them to reach an agreement that suits you.
Debt consolidation involves taking out a single loan, which is used to cover multiple debts. The aim is to clear debts with high-interest fees and penalties and establish a means of paying a single payment every month, which enables you to start afresh and be debt-free. You use the money you borrow to pay off people and businesses you owe and then focus on paying back the debt consolidation loan.
This method can work very well, but there are risks, especially if you borrow money against your home. This is known as a home equity loan. If you can’t keep up with repayments, this will mean that you’re at risk of losing your home. Incorporate the monthly installment into your budget and make paying off that loan a priority.
Debt Management or Credit Counseling
Debt management is similar to using a debt settlement agency, but it involves going through counseling and handing control of your finances over to the agency. In this case, your money will be handled by representatives from the firm, and they will negotiate with and make payments to your creditors for you.
This method can help you manage your money in the future to prevent further problems, but it is important to be aware that it may affect your credit score. If you can’t control your spending or you struggle to keep a firm handle on your finances, this could be an effective solution.
Bankruptcy is generally considered as a last resort when other options aren’t viable. In this case, the individual is unable to pay their debts, and there is a risk of losing assets and possessions. Bankruptcy is likely to have a serious and long-lasting impact on your credit score and your ability to borrow money in the future, and it doesn’t always guarantee that you will be able to pay off creditors. The case will be reviewed in court, and a judge will decide which chapter of bankruptcy applies to you. Chapter 7 means that the entire debt will be forgiven while chapter 13 means that a percentage of the total will be payable.
Which Debt Relief Option Is Best For You?
Debt is a very common problem. The good news is that there are ways to get out of debt and get your finances back on track. The key often lies in getting advice from the right people and choosing the best debt recovery method. Every person has a different financial situation, and some options will suit you better than others. The choices you make may depend on a host of factors, including the amount you owe, how much you earn and how much you would be able to pay back.
If you’re in debt, the sooner you take action, the better. Some debt relief methods require working with specialist agencies, but even if you don’t pursue one of these options, it’s wise to seek advice from people in the know.
Financial advisers can help to explain the different options to you and make recommendations based on your individual circumstances. It’s incredibly useful to have somebody there who can offer advice and answer questions before you make a decision. In some cases, you may also find debt counseling useful, particularly if you find it difficult to control spending. If you’re worried about the cost of seeing a financial adviser, look out for federal government approved non-profit organizations that offer debt relief advice.
When you’re mulling over your options, think about the short-term and the long-term. If you can find a way of paying back debts without it impacting your credit score, this is preferable. However, don’t worry if your rating is temporarily affected. It will be possible to build it back up once you’ve shown that you can stick to a payment plan, pay off bills or pay off a loan.
All debt relief options should be accompanied by effective budgeting. In order to ensure that you can keep up with repayments and cover the minimum costs, you need to know how much money you have available. Budgeting can help to reduce spending, free up more money and encourage you to keep a closer eye on your finances.
If you don’t budget already, it’s very easy to get started. You simply need to note down your weekly or monthly income in addition to your outgoings. This will include bills you pay, payments for credit cards or loans, and any other expenses, such as rent or your mortgage, your phone, and travel costs, for example. Once you’ve got two sets of numbers, you can work out how much you have leftover.
Debt is a common problem, but that doesn’t make it any less daunting for those who are having trouble keeping their heads above water. If you are struggling with debt, there are options out there that can help you pay off outstanding bills, cards, and loans and get back into the black. Not all options are suited to everyone, and this is why it’s so beneficial to consider different methods and speak to experts about your individual situation. Hopefully, this guide has given you an insight into what kind of help is available and the options you can use to pay off debt and start moving forward.