Debt relief can be a helpful tool for people who are struggling to manage their finances. It can help you get out of debt more quickly, lower your monthly payments and improve your credit score. There are several different debt relief options available, so it’s important to understand the benefits of each one before making a decision.
In this post, we’ll take a brief look at the three most common debt relief options—credit counseling, debt consolidation and debt settlement—and discuss who qualifies for each option.
Credit Counseling
Credit counselors can help you get out of personal loan debt by reviewing your financial situation, teaching you how to manage your money more effectively and working with you to organize a debt management plan. They may also talk to your creditors to try to get them to lower your interest rates and fees. With this debt relief option, you would make one monthly payment to your credit counseling agency and they would, in turn, pay your creditors for you with that money.
Who Qualifies?
Anyone with unsecured debt, such as credit cards and personal loans, may qualify for credit counseling as long as they can stick to a three to five-year payment plan.
Debt Consolidation
Debt consolidation can help you get out of debt by combining all of your debts into one payment. There are a few different ways to do this, including balance transfer credit cards, personal loans and home equity loans.
Balance transfer credit cards offer low or no interest for a set time. This may be a good option if you’re able to pay off your debt within that window.
Personal loans and home equity loans involve borrowing enough money to pay off all of your debts and then making a single payment on that new loan. This may be a good option if you qualify for a lower interest rate than you’re currently paying on the debts you owe.
Who Qualifies?
To get the most out of debt consolidation, you’ll need good credit. The better your credit, the lower your interest rate will be.
You should also be sure you can afford to repay your consolidation loans. For example, if you don’t pay off your balance in full during the introductory period on a balance transfer credit card, the interest rate will increase dramatically.
Similarly, if you can’t make your payments on a home equity loan, you could be forced to sell your house. Personal loans are less risky, but they may still damage your credit if you default on them.
Debt Settlement
Debt settlement is a type of debt relief in which you work with a company, similar to debt counseling, to negotiate with your creditors to reduce your debt in exchange for a single lump-sum payment. In this example, you would send money to the settlement company each month, and they would use that money to pay off your creditors.
Who Qualifies?
To qualify for debt settlement, you’ll need to have at least $7,500 in unsecured debt and be able to make the monthly payments to fund your settlement agreements. The settlement company will also need to be able to prove that you are unable to make payments on your debt.
Debt settlement of a personal loan may be a great option if you’re struggling to pay your bills. Each of the methods covered has its own benefits and drawbacks, so it’s important to do your research, talk with a financial expert and choose the one that’s best for you.
