The Avenues to Debt Relief
The road to financial freedom can be long, winding, and overwhelming. Familiarizing yourself with the paths to relieving debt stress is the first step to creating a map specific to you. The methods of debt relief vary greatly – from creating a budget to filing bankruptcy. The options to debt relief are as follows:
- Do-It-Yourself debt relief plans
- credit counseling
- debt consolidation
- a debt management plan (DMP)
- debt settlement
- filing for bankruptcy
However, before choosing an option there are very important considerations that should be addressed. An issue to think about is to choose an option that is right for you. Any of the options you have are not going to be favorable to your credit or likely to give you that “warm fuzzy feeling.” Addressing overwhelming debt is difficult in every respect. Emotions arise in difficult times. When choosing a debt relief option, choose logically not emotionally.
On that note, choosing a debt relief option that is right for you is about reality. The reality of your choice is simply limited to which option you can afford. Simple logic would be to start with a reasonable monthly budget. However, the budget has to be realistic. A $100 per month budget for a family of three is not realistic. Once you complete your budget, determine how much disposable income you have to pay on your credit card, medical bills and other non-necessary living expenses. Logically, if you have little or no money left over, bankruptcy may be a good option. If you have some money left over, perhaps a repayment plan type of debt relief may work.
Listed below are most options for consumers to consider relative to debt relief. In most instances, your monthly budget should make the wise and realistic decision for you.
Do-It-Yourself Debt Relief Plans
Do It Yourself debt relief starts by developing a personal budget and determining where you can reduce spending. You can also contact your creditors directly to explain your financial situation and see if they are willing to negotiate your payment plan. If you are receiving calls from debt collectors, it is important to know your rights of contact. They are not legally allowed to call you before 8 a.m., after 9 p.m., during work hours if your employer does not approve, and not at all if you send them a seize contact letter. Starting with these solutions, you may find you are able to resolve your debt on your own.
Credit counselors assist in determining the next step in the debt relief process. They will help you review your budget, evaluate what debt relief options are available to you and suggest the best solution. This is a thorough analysis of your debt to determine a long-term solution.
Debt consolidation, as the name suggests, consolidates your debts into one payment. Through this plan, you typically pay a lower monthly amount with a lower interest rate, but over a longer period of time. Because the payment period is longer, it is important to calculate how the totals paid may differ to ensure this is advantageous to you.
Debt Management Plan (DMP)
A debt management plan, also referred to as a DMP, reduces your interest rates and offers a lower monthly payment. This plan is made with the assistance of a nonprofit credit counselor. There is no minimum or maximum amount of debt to qualify for a DMP, but the counselor may recommend a different route for you if it is a better fit. Personal loans, credit cards, store cards and overdrafts qualify. Once entering an agreement with your creditors, you will pay the agreed sum to the counselor and they will disperse them appropriately to the creditors.
Debt settlement reduces the total amount of debt you owe through working with a debt settlement firm, who will negotiate with creditors on your behalf. This is a common route if you do not qualify for bankruptcy but still have an outstanding amount of debt. It is important to note that this method will affect your credit score, as the debt amount will not be paid in full.