Exploring Debt Relief Options

There are millions of households around the United States that are struggling with mounting debt and unpaid bills. While the economy has recovered significantly since the recession of 2008, for many people in the country, money is still very tight, they find themselves saddled with debt that they cannot pay and there seems to be no relief in prospect.

But this is no reason to get disheartened as there are several debt relief options out there, waiting to be explored. Each of the debt relief options discussed by us has its own advantages and disadvantages. You should select the one that is most suitable for your current circumstances.

Create a Budget and Pay Down the Debt

Monthly Budget WorksheetCollect your financial documents and credit card reports, and find out where you stand. Write down all the balances, interest rates, and monthly amounts due for all debts – credit card debts, auto loans, personal loans, payday loans etc. Make a note of the annual fees on your credit cards. Ignore mortgage loans or student loans for the moment as they have low APRs.

Now take a hard look at your monthly expenses and prepare an income vs. expense statement. Your expenses should include the payments made for rent, mortgage, insurance, utilities, groceries, student loans, and everything you can think of. Subtract your expenses from monthly income and find out how much you’re left with to pay off urgent debts.

Look at cutting unnecessary expenses such as eating out, cable subscription, having coffee everyday at Starbucks and so on. The more money you save, the easier it becomes to pay off existing debt. This takes patience and a plenty of personal sacrifice, but it’d be well worth it when you finally become debt free.

Bankruptcy

Bankruptcy protection is a unique way to settle your debts, but should only be used as a last resort.  During a bankruptcy Chapter 13 settlement, you pay off your debts through a detailed repayment plan, which protects your assets from getting liquidated. A Chapter 7 bankruptcy ordered by the courts protects several of your assets even as your debts get written off. Bankruptcy is the best long term protection against creditors and debt collectors.

However, bankruptcy adversely affects your credit standing for at least 10 years. Bankruptcy is recommended only if you have a very limited income and huge unsecured debts. So explore other debt relief options first before considering bankruptcy.

Credit Consolidation

Debt consolidation or credit consolidation is one of the most effective debt relief options where lenders transfer all their loans into a single loan. A big low interest loan is then issued by major banks to pay off this consolidated debt. This debt relief option is recommended for those who find themselves owing money to several lenders.

Refinancing the Home Loan

This is one of the most popular debt relief options that involves taking a new loan on your home and using the money to pay off all existing debts. Refinancing the home loans allows you to lower your monthly repayments, make only one repayment, rather than several, lower your interest rate, pay off your debts much faster and it allows you to be in control of your debts, especially credit card debt, rather than get controlled by them.

Debt Relief Agencies and Nonprofits

Most people are not financially savvy and when hit by the burden of debt, they will need help from experts. Debt relief agencies help people manage their finances better, and pay off their debts in a much easier manner.

They help relieve some of the stress involved in repayment of debts by offering professional advice that gets to the core of the issue, helping people understand where they’re going wrong, what needs to be changed, while exploring several debt relief options that might make things easier.

Debt relief experts will have access to knowledge that most people may not have, which helps greatly while deciding on the methods to be used for debt repayment. While most debt relief agencies charge a small payment for their services, there are non-profits that offer these services as well, that don’t charge you any money for their advice.

Conclusion

We hope the advice given here has been useful to you, and given you the information that you were looking for on your debt relief options. Remember, be calm, never be scared by the prospect of debt repayment, there are several excellent options available to you. And never be too shy to ask for professional guidance on the management of your debts.