What are the Best Debt Relief Options? – Money Pacers
What are the Best Debt Relief Options?

What are the Best Debt Relief Options?

debt relief options revealed

 

Debt – are you drowning in it, right now? The quicker you can discover the best debt relief options, the better. Owing money is a way of life for most of us. The effects of the Great Recession coupled with stagnant wages have left many American families facing the need for debt relief. Many of us know what it’s like to tear your hair out or feel as if your world was as bleak as a rainy day.  Right now, you may even be getting repeated calls from angry creditors or even from debt collectors. If you can find a solution that provide you some benefits, you know you’re on the right track.

5  debt relief options to consider

1. Interest rate negotiation

The first option for debt relief is something you can do on your own.  Contact all of your creditors, and one by one begin to negotiate a lower interest rate on each account.

Benefit? Every lower APR  you accomplish means less of your money is being eaten up by interest charges.   By lowering the APR, you are actually eliminating the debt (principal) faster.

Can it work for me? In general, if you have a good credit score and a solid payment history with each lender you contact, and if you’re a good customer who always pays on time, then you can work it.

2. Credit card balance transfer

One the best debt relief options out there is also do-it-yourself.  It’s called the credit card balance transfer.  In essence, you transfer balances from your existing credit cards to a new account.  The new card typically has a 0% APR introductory period ranging from 6-24 months.

Benefit? Yes, transferring the balances gives you a certain number of months to pay off your debt interest-free. That means 100% of every payment you make is used to eliminate the debt. This can accelerate debt elimination rather quickly.

Can it work for me? A high credit score is a must these days. The higher your score, the longer the introductory period you can qualify for -more months you don’t have to pay interest charges. This works best when you have an amount of debt you can eliminate in-full within the introductory period.

3. Personal debt consolidation loan

Most credit cards carry high interest charges; by comparison, interest rates on other loans are much lower. This is one of those debt relief options you take out an unsecured personal loan and use the money to pay off your credit cards. This leaves only the loan to pay off, consolidating your debt at a lower interest rate.

Benefit? Consolidating credit card debt with a loan solves a few problems. It often significantly lowers the interest rate applied to your debt. It also provides fixed payments that are easy to manage in your budget.

Can it work for me? Yes, if you have good credit. The higher the credit score – the lower  the interest rate, and a better chance you can get a large enough loan to pay off all of your debt.  Ideally, you’ll want to aim for a loan term of 5 years or less with an interest rate of 10% or less.

4. Debt management program

You enroll in the debt management program (DMP) through a credit counseling agency. They help you find a payment that works for your budget; then they negotiate with your creditors to lower your interest rates. You make one payment every month to the agency and they distribute that payment to your creditors.

Benefit? The credit counseling agency represents you to get low interest rates (even with bad credit). Your credit counselor also helps you work out an affordable budget you can really pay each month.

Can it work for me? If you can’t consolidate on your own and negotiation with your creditors failed, call a credit counseling agency! If you qualify for the program, they can do both of those things for you.  As long as you have income to make a payment every month, this is usually a viable option.

5. Debt Settlement

This is essentially a last resort before bankruptcy. In this case, you settle your debt for less than the full amount owed. Generally, you make a lump-sum payment that equals out to a certain percentage of your total debt. In exchange, the creditor discharges the remaining balance.

Benefit? If you can get the creditor to agree, then you can get out of a debt for less than what you owe. It’s actually similar to the partial payment schedule that you establish during Chapter 13 bankruptcy. The difference here is that you can do this with a single debt, which might give you the relief you need to pay your other debt bank in-full.

Can it work for me? Debt settlement programs can be risky. They typically only work with debt that is in deep collections. After multiple attempts to collect the full balance owed, they may agree to take a cut. However, first you usually have to make a lump-sum payment. This can be difficult to generate if you’re already in financial rut. Even in a best case I’ve seen, this can cause significant damage to credit.

Don Briscoe
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Don Briscoe

Finance educator, advisor, and leading voice in the global financial literacy movement.Founder and editor of MoneyPacers.com.He lives and enjoys life with his family in New York.
Don Briscoe
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