You’re bombarded with debt, most of it from high-interest credit cards, and you see no way out on your own. You’ve decided on debt relief, but you aren’t sure what it entails, or even how to find a good program. Let’s look at the financial strategy and characteristics of the best debt relief companies.
What is Debt Relief?
Let’s start there. Basically, it’s when you hire a company to try to get a creditor to accept less than what you owe to settle a debt. The creditor – usually a credit card issuer – is typically motivated to do so since an alternative for you is bankruptcy, which would leave the creditor with zilch.
While the company is negotiating on your behalf, you withhold payments and instead deposit funds monthly into a kind of savings account. When you have accumulated enough money, the debt relief company will go to each of your creditors with a settlement offer.
However, there are other kinds of options that can also fall under debt relief.
Debt Relief Options
- Debt consolidation. This is when you take out a personal loan with a lower interest rate than what you’re paying on your debts, then repay your lender in monthly installments. It’s also when you shift high-interest credit card debt to a 0%-interest balance transfer card. Both are ways to save money and streamline the bill-paying process since you only have one monthly payment to deal with.
- Debt management. Here, a credit counsellor will work with your card issuers to reduce rates and payments to affordable levels. You could be debt-free in 3-5 years. If you miss a single payment, however, you could get bounced from the program altogether.
- Bankruptcy. The big factor here is that notice of such a filing will hang out on your credit report for 7-10 years Still, if you don’t see a way out of debt within five years, even with extreme belt-tightening, this may be a workable option.
Criteria for Choosing the Best Debt Relief Companies
Because each situation is different, there’s no one-size-fits-all, as far as debt relief strategies go. However, there are some things you want to look for.
- Credit counselling. You should make certain the counselling agency is certified by the National Foundation for Credit Counseling or the Financial Counseling Association of America. You should also see what kinds of debt the agency accepts. While they all work with credit card debt, just a few handle student loans or medical debt. Also, check online customer reviews and the Better Business Bureau, and find out how long the agency has been in business.
- Debt settlement. Find out whether debt settlement is even legal in your state. If it is, ask the company about services fees. Note that debt settlement companies, under law, aren’t allowed to charge fees upfront. No fees can be collected until a debt has been settled. Ask whether the fees are based on the original debt or settled debt amount. Also, find out what happens if creditors don’t accept the settlement offer.
- If you’re even eligible for bankruptcy, you should hire a bankruptcy attorney. You can expect to pay roughly $3,000 for a chapter 7 filing and as much as $6,000 for a chapter 13 bankruptcy.
Now you know your options and some of the characteristics of the best debt relief companies. Size up your financial situation and make the choice that’s best for you. With a lot of patience and perseverance, you can get back on the right track. Call a professional today.
