You might consider professional financial help if your debts are overwhelming, you are having trouble paying the bills on time, or you are contemplating filing for bankruptcy. Consumers have two options to get debt relief.
Depending on the financial situation of your family, you may find debt management, debt resolution or other forms of debt relief beneficial. Both debt management and settlement options have pros as well as cons. Be sure to understand the differences between debt management and debt settlement before you commit consolidationnow :
Find out more about how debt settlement works and what you can expect.
Management of Debt
Consumer credit counseling offices offer debt management programs (also known as DMPs or Debt Management Plans). Credit counseling agencies offer free assistance to people who have trouble managing their finances and do not want to go bankrupt. You as the customer will often receive their services at very low or even no cost. Credit counseling agencies receive funding in part from creditors.
Along with your debt management plan, you’ll also receive personal finance coaching.
A debt management program can give you a fresh beginning and help you pay down your debts. The credit counseling agency will work together with your creditors to negotiate lower monthly payments that cover all your debts. Additionally, the agency will waive fees or reduce interest rates if it is possible. In return, the credit counseling agency will negotiate a lower monthly repayment to pay off all your debts over a time frame of months or even years. Most people are able repay their debt within three-five years of starting a debt management strategy.
Debt Management: Why You Might Choose it
A debt management plan can help you get out debt for many good reasons.
- One monthly fee. Credit Counseling agencies make it easy by offering one monthly payment to consolidate all of your outstanding debts. You pay this lump sum each month to the agency and the agency pays each of your creditors separately. A single monthly payment helps you manage your finances more efficiently. Credit counseling agencies are there to help you deal with your creditors.
- Get money back. Credit counseling agencies work with creditors to negotiate lower rates, waive fees, or otherwise save you money on your debt payments. This means that the monthly payment you make to your debt management plan might be less than what you were originally paying. This could allow you to make more money and save for your future.
- No credit card damage. Following a debt management strategy can help you to build or rebuild your credit. Your accounts will be credited with 100% for any payments you make. The best way to get your credit back on track is through debt management.
Alternatives for Debt Management
If your debts are under control and you do not wish to commit to a multiyear plan for debt management, or if credit is sufficient to allow you to obtain another loan, debt consolidation may be the best option. If you consolidate your debts using a consolidation loan, you could repay them all at once by taking out a new loan (e.g. a personal loan through your bank or credit union) or using a 0% balance transfer creditcard.
Consolidating debt can help to reduce your interest rate and get out of financial trouble faster. You may not be able to qualify, however, for a lower-APR loan consolidation. If you have bad credit and are having difficulty paying your debts, it may be worth looking into debt settlement.
This is a method of debt relief that allows individuals to try to reduce their debts and get lower repayments. This can either be done by the individual creditor, or by using the services provided by a debt relief company.
Instead of paying what you owe, debt settlement is where you pay less than what you owe. Debt settlement may be risky and could damage your credit. If you are in financial crisis, this should not be your last resort.
Why Debt Settlement is a Good Choice
There are a few good reasons to choose debt resolution:
- Unable to declare bankruptcy or not willing to do so. Debt settlements may be an option.
- Are unable to or unwilling or unable to apply for consolidation loans for debt? Then debt settlement may be the right option for you.
- Are you willing to accept damaged credit? A debt settlement process will cause your credit to suffer and make it difficult to pay your bills. You may consider debt settlement if you have bad credit and are ready to take a hit on credit in order to rebuild your finances.
Because of the risks and credit damages involved, debt settlement is not the best fit for every situation. In some cases, however, debt settlement can be worth exploring.
Alternatives to Debt Relief
The settlement of debt can damage your credit. Instead, you might talk with a credit counseling agent and select a debt management strategy.
Also, if your credit score is sufficient to allow you to obtain a low-interest loan or balance transfer, debt consolidation may be a better option than debt settlement.