Managing debt and building a solid financial foundation are essential goals for anyone. Whether you have credit card balances or a mortgage that you struggle to keep paying each month, it’s important to know how to address the problem before it escalates into a costly emergency like foreclosure or bankruptcy.
Debt relief programs can help by reorganizing your debt into a more manageable payment plan or even completely eliminating some of the debt. It can be difficult to find the best option for your situation and it’s often helpful to work with a professional. Having someone who has your best interest in mind can prevent you from being taken advantage of by creditors or debt collectors.
Debt relief companies are able to reduce your unsecured debt balances by negotiating with your creditors on your behalf. They’ll typically instruct you to stop paying your debt payments and instead deposit a monthly amount into a special savings account they set up for you (for a fee). Once they have enough money in the account, they approach your creditors, representing that you are so far in default that they’re better off accepting partial repayment than not receiving any payment at all.
The most common form of debt relief is debt consolidation, which combines multiple high-interest unsecured debts into one monthly payment with a lower interest rate. However, it’s important to understand that debt relief is not a cure-all and you’ll still have debt remaining after completing a debt consolidation program.
While some debt relief programs can have positive impacts on your credit, others—like debt settlement or bankruptcy—will significantly hurt it. Fortunately, there are also nonprofit credit counseling services that offer free, no-risk debt relief consultations and can provide advice on how to avoid the most drastic options.
The debt relief options you choose should align with your financial goals, and you should always consult with a qualified financial counselor before making any final decisions. A debt counselor can review your options, including debt relief and a personal budget that will enable you to pay off your debts over time without incurring further costs.
It’s important to note that some debt relief programs can take years to complete and require consistent, on-time payments. It’s also essential to research any potential provider to ensure they’re a reputable company and that they won’t charge you exorbitant fees for their services.