There are many debt relief options to choose from. So if you are like one of the many Americans who made debt reduction their New Year’s resolution, you won’t have a shortage of strategies to use. The options available are all effective. But you will notice that there are usually one or two debt solutions that perfectly fit your specific financial situation.
What does that mean?
It means when you use the right debt relief program, it makes your payments more affordable. If you can meet the monthly payments, it won’t feel like a burden each month. There’s a higher chance that you’ll meet every payment obligation and completely get out of debt.
But that’s not all. You have to understand that all the debt relief options have an effect on your personal finances. This is why you have to choose carefully among the debt relief programs that you have. That way, once you complete the debt relief program, it didn’t just make you debt-free. It also conditioned your finances so it’s ready to meet your next financial goal.
These are only a few of the reasons why you have to make sure you choose the right option to get out of debt.
5 different debt relief options for various financial situations
Now, what are the debt relief options that you can choose from?
There are 5 different strategies that will get you towards debt freedom.
Typical monthly payments
The first is the typical repayment plan that you originally agreed to do when you borrowed the debt. It has the original interest rate and the agreed monthly amount that you will pay. Make sure that before you borrow a debt, you understand how much is expected of you to pay every month. This will allow you to include this in your budget plan. That way, your monthly payments will always be funded.
Ideally, this is the repayment plan that you should stick to. If your financial situation does not change, After all, this is what you agreed upon with creditors and lenders. You have to honor that agreement. But there are times when life changes your ability to pay off the same plan. It may become too expensive for you.
If that happens, that’s okay. Your creditors and lenders understand that this can happen. Just make sure that you let them know about it. You might be surprised that they are willing to work with you in changing your repayment plan.
Debt consolidation loan for a lower interest rate
This is another one of the debt relief options that you can choose. If you can no longer afford your payments and you need a lower interest rate, you can opt for debt consolidation loans.
Of course, you can always try to negotiate a lower rate with your creditors and lenders. But sometimes, they won’t agree.
What you can do is to change the terms of your monthly debt payments through a new loan. This is very helpful especially if you have mostly high-interest credit card debts. You can borrow a low-interest debt consolidation loan or a personal loan. Then you’ll use this money to pay off all your high-interest loans. Once that happens, you’ll be left with the same amount of debt – but now with a lower interest rate. If you choose the right length for your debt, you might be able to lower your monthly payments. It’ll be like hitting 2 birds with one stone.
Debt management for an affordable repayment plan
You can also opt to choose debt management if you want to have a more affordable repayment plan. What’s great about this is the monthly payment will really be based on your specific financial situation. You also have the option to work with a professional. There are credit counseling agencies that offer debt management as part of their debt relief program. You will work with a credit counselor and they will help you if you can no longer afford to meet your debt payments. They’ll be the ones to analyze your current finances.
When you approach a credit counselor, they will take a look at your finances. They’ll create a personalized repayment plan for you. That means it will be based on whatever amount you can afford to pay.
No matter how low that plan is, they’ll present it to your creditors and lenders. They’ll convince them that you’ll stick to this plan. If they agree, you’ll send your payment to the credit counselor and they’ll be in charge of sending it to the different accounts you owe money from. This arrangement makes it easier for you to meet your monthly payments. And since you’re not the one sending the payments, you can focus on earning the money to pay off your debts.
Debt settlement for debt reduction
What if you don’t just want to make your monthly payments affordable. What if you need a debt reduction? This means you need to have your balance reduced. If you owe $50,000, you want to pay less of that amount. Is this possible?
Debt settlement makes it possible. How? You’ll approach the creditors and or debt collectors. You’ll tell them that you don’t have enough money to pay them off. So you’ll negotiate a settlement amount. This is an amount that’s lower than what you owe. You’re going to try to convince your creditors and debt collectors that you’ll give them this settlement amount. Anything that it cannot cover, they’ll have to forgive. If they agree, make them send you a proof of the agreement. Make sure you have this before you send them any payment.
In case you think that you can’t do this yourself, you can always find a professional who can help. There are legitimate debt settlement companies who can work with you and help you negotiate the best debt reduction terms.
Bankruptcy for debt discharge
If your financial situation is really so bad that none of the previous debt relief options are applicable, it’s okay. You still have one option – bankruptcy. Of course, this should be your last resort. You have to really scrutinize the other options and try to avoid bankruptcy as much as you can.
But if you know that your income situation will not get any better and you still have a lot of debts to pay off, then it’s okay. Save yourself from further stress and just declare bankruptcy. Of course, you have to be aware of the effects of bankruptcy. Know how it will affect your financial situation – specifically your credit reputation. There’s also a possibility that you’ll lose your house. If these effects don’t bother you, then go ahead and have your debts discharged through bankruptcy.
Before choosing among the debt relief options
You have to realize that all of these debt relief options are effective. These can all help you get out of debt. But choosing the right one will produce the best results for your finances.
There are three things to look into before you choose what option you’ll use to get out of debt.
Consider your payment capabilities
Start by looking at how much you can afford to pay each month. If you need a very low debt reduction, debt management or debt settlement are your best options. If you just want the interest rate to be lowered, debt consolidation loans seem like a great option. But if you really can’t afford to pay your basic necessities much less your debts, then opt for bankruptcy.
Understand the pros and cons
It also helps for you to list the pros and cons of each option that you’ll consider. Sometimes, you’ll find that your debt situation is qualified for more than one debt relief option. To make your choice, just list the pros and cons of each. Focus on how these options would affect your finances. Then you can choose based on what you’ll discover.
Make a commitment to stick to the plan
Finally, choose the debt relief option that you can stick to until the very end. Because the truth is, not everyone is ready to give up everything just to be debt-free. This is according to a recent report. Like more than half said they weren’t ready to give up their cell phones. Others aren’t willing to give up their car or dining out.
This shows that there are still people who haven’t really made debt relief their priority. This means you have to really encourage and motivate yourself to stick to your plan. Make sure that you get to know your debt relief options so you can really make a smart choice about it. You can choose the one that’s the easiest to stick to.