Debt relief programs can help you resolve debt that you've been struggling to pay off on your own. Programs vary in length and cost, so comparing options is crucial. After you've weighed the risks and benefits, understanding how to get debt relief is the next step in the journey to debt freedom.
Debt relief companies can negotiate with your creditors to lower the amount you must pay on certain kinds of debt. While there are some disadvantages, it can be beneficial in certain situations.
You may need debt relief if you're having trouble making the minimum payments on unsecured debts, like credit card balances or medical bills. Not all debts qualify for debt relief. Examples of debts that do not qualify include mortgages, auto loans, unpaid child support, back taxes, insurance policies, and traffic tickets.
Once you've become severely delinquent on certain debts, catching up may be too expensive. Debt relief can help you negotiate a lower payoff amount for charged-off or defaulted debts. However, you'll have to be committed to making monthly payments to save up to make a payoff offer. Keep in mind, however, that some creditors may not accept a settlement offer from a third party, or at all.
Events like job loss, divorce, and unexpected medical bills can pose a serious threat to your finances. A debt relief company may be able to explain your financial hardships to your creditors and negotiate a lower payment.
Specific requirements for debt relief could be different from one provider to the next. Here are some of the common requirements.
In a debt relief program you'll typically need to make monthly payments to a settlement fund that will later be used to settle your debts. The amount you're required to set aside will depend on the amount of debt you owe. The more you owe, the higher the contribution needed to complete the program in a reasonable timeframe.
The money in your settlement account is yours and you can access it at any time. However, withdrawals may delay your completion timeframe.
Debt relief is designed to help people struggling with certain kinds of unsecured debts including credit cards, personal loans, payday loans, medical bills, and the like. To be eligible, you'll typically need to owe several thousands of dollars in debt and be behind on payments.
You may need to show that you're unable to pay your bills regularly due to job loss, reduced income, high medical expenses, or other financial difficulties. Other options may be better if you think your financial troubles are short-term.
The best debt relief companies will provide information about their services before you enroll. As you search for the right company, here's what to look for.
Verify that the company is registered and licensed to offer services in your state. You can get an idea of the company's reputation by checking its rating with the Better Business Bureau and by reading any reviews left by previous customers.
Weigh your needs against the services offered by the debt relief company, which may include debt consolidation and debt settlement.
The cost of a debt relief program can tip the scales when you're deciding between two comparable companies. Debt relief companies aren't allowed to charge upfront fees for services, although you may be charged separately for account maintenance.
It's most important to understand how you'll be charged once an account has been settled. Some companies charge a percentage of the total debt you bring into the program while others take a percentage of debt they settle.
Any debt forgiven or reduced is considered income and could be taxed.
Debt relief can take several years. Many people drop out of the program before settling all their debts. Choose a company with a high success rate and a track record of helping previous clients reach their financial goals.
Start by scheduling a consultation during which a counselor will review your finances, present your debt relief options, and outline what you can expect from the program. Consulting with two or three companies before making a decision allows you to compare options and choose the best one for you.
Debt relief program fees vary. You may be able to negotiate a fee on the lower end of the typical range (15% to 25% of your debt) depending on your financial situation.
It can take 24 and 48 months to complete a debt relief program. Building up your settlement fund quicker can help you finish the program sooner.
People who have unmanageable unsecured debt and are going through a financial crisis can usually qualify for debt relief. You should be late on payments and owe a minimum amount of debt, e.g. between $7,500 and $10,000. Finally, you'll have to be able to afford making a monthly payment into a debt settlement fund.
Generally speaking, any debt can be forgiven. In a debt relief program, unsecured debts are more likely to be forgiven. This includes:
Yes, debt relief can affect your credit score negatively once you stop making payments to meet the debt relief program requirements. However, your credit score may not drop as much if your accounts are already charged off or in collections.