What are the top debt relief programs and tools?
Sometimes we all need a little push, and the right tool or program can be just the thing you need to start making real progress on your credit card debt. These are the four most popular methods of repaying credit card debt (beyond just handling it on your own). While there are other ways to approach debt management, these are the preferred debt relief programs to turn to when you’re overwhelmed by debt and need help.
Debt consolidation is a blanket statement that covers a variety of methods (including debt management plans). The basic premise is always the same, though: you take multiple debts (usually unsecured credit card debts) and bring them all together, either as a loan, a credit card balance transfer, a mortgage refinance, or something else.
The big benefit of debt consolidation is that all of those accounts — with their different payment amounts, different due dates, and different interest rates — become one payment (ideally with a lower interest rate). As with any credit product, though, the better your credit score, the better the terms you’ll be able to score. If your credit’s a bit subpar, you may have a hard time qualifying for something that actually helps you save money.
Want to learn more? Go deeper on debt consolidation.
Debt Management Plan
A debt management plan (or DMP) is a form of debt consolidation usually offered through a nonprofit credit counseling agency like Money Management International. The credit counseling agency works with your creditors to reduce your interest rates and set a monthly payment that fits your budget. You make deposits to the credit counseling agency, which then makes monthly payments on your behalf.
You don’t need a high credit score to qualify for a DMP and plans are typically designed to be completed within five years, which makes it an appealing option for anyone who’s missed a few payments or simply wants to accelerate their debt repayment.
Intrigued? Take a deeper look at debt management plans.
The major advantage of debt settlement is that you’re only paying off a portion of your credit card debt. Working with a settlement company or handling your own negotiations, you work out an agreement with the creditor to pay back a certain percentage of the debt, usually in one lump sum or a small number of payments. The unpaid debt is considered forgiven, and while it may have tax implications, you won’t have to pay that portion off.
Debt settlement usually causes major damage to your credit score, so it’s typically only recommended if you’re already extremely delinquent or if paying in full isn’t feasible.
Interested in this option? Learn more about debt settlement.
Bankruptcy is an important tool for when the situation has gotten so out of hand, none of the other options are remotely viable. Filing for bankruptcy is a difficult (and potentially costly) process, but it’s a perfectly valid option, especially when unsecured debt begins to threaten your home and livelihood.
There are two kinds of bankruptcy: Chapter 7, where the included debts are wiped out, and Chapter 13, where you end up repaying a portion of the included debts through a repayment plan. If the court determines that you have the “means” to repay at least some of your debts, you’ll likely end up having to file for Chapter 13 bankruptcy. No matter which option you’re interested in, if you’re considering bankruptcy you should speak with a qualified attorney.
Have questions? Get more information on bankruptcy.