Options for Debt Relief

Formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt.

Debt can often feel overwhelming, but there are several strategies and options available to help manage and alleviate this burden. This article will explore various debt relief options, including debt settlement, bankruptcy, debt management plans, and credit counseling services.

Debt Settlement

Debt settlement involves negotiating with your creditors to allow you to pay a "settlement" to resolve your debt — a lump sum that is less than the full amount that you owe. To make that lump sum payment, you might have to save by making monthly payments to a third-party settlement organization for a period of time.

However, debt settlement can have significant negative impacts on your credit score and may not stop creditors from suing for the unpaid debt. It's also important to note that forgiven debt may be considered taxable income.

Bankruptcy

Bankruptcy is a legal process that can help you get a fresh start by discharging or restructuring your debts. There are two main types of personal bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy involves liquidating some of your assets to pay off as much debt as possible, after which the remaining unsecured debt is discharged. Chapter 13 bankruptcy, on the other hand, involves creating a repayment plan to pay back all or part of your debts over time.

Bankruptcy can provide immediate relief, but it also has long-term consequences. It can significantly impact your credit score and remain on your credit report for up to 10 years.

Debt Management Plans

A debt management plan (DMP) is a structured repayment plan set up and managed by a credit counseling agency. You make a single monthly payment to the counseling agency, which then distributes the funds to your creditors.

DMPs can help reduce interest rates and waive certain fees, making it easier to pay off your debt over time. However, they often require you to close your credit accounts, which can impact your credit score.

Credit Counseling Services

Credit counseling organizations can provide advice on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. They can also help you with a DMP and provide other types of assistance.

It's important to choose a reputable credit counseling organization, as there are many scams out there. Look for non-profit organizations and check their reputation with your local consumer protection agency or state Attorney General.

In conclusion, while debt can be overwhelming, there are several strategies available to help manage and alleviate this burden. It's important to understand the implications of each option and consider seeking advice from a financial advisor or credit counselor.