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When should you seek debt relief?

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If you are struggling to pay off your debts and facing financial difficulties, debt relief can be an effective option. However, it is important to keep in mind that debt relief is not a universal solution and requires careful consideration. Before making a decision, make sure you understand the eligibility requirements for debt relief and the main reasons why people choose it, such as having trouble paying unsecured debts or considering bankruptcy.

What is debt relief?

Debt relief is a process that helps consumers avoid bankruptcy and restore their credit standing, which is undertaken by companies.

When is debt relief a good idea?

Debt relief aims to make your current debt more manageable. It is an option many consider to reduce monthly payments, obtain a lower interest rate, or accelerate debt reduction.

You cannot pay unsecured debts

Unsecured debt encompasses credit card debts, personal and student loans, and medical bills. If you’re struggling to make payments on these types of debts, it may be beneficial to look into debt relief options. This is particularly crucial if your unsecured debt exceeds or equals half of your annual gross income.

You’ve considered filing for bankruptcy

To declare bankruptcy, you need a judge’s approval to challenge all your outstanding debts and financial obligations. There are two main types of bankruptcy that from: Chapter 13 or Chapter 7. Although it might seem like a fresh start, bankruptcy is risky. If you’re thinking about filing, it’s a good idea to explore debt relief as an alternative first.

How does debt relief work?

To go through the debt relief process, you’ll need to collaborate with a company advisor who will assess whether you’re an eligible candidate. During this conversation, make sure to disclose your current financial situation and the total debt amount.

Different companies have different processes for paying off your debt, but typically you will be given a savings account. You will need to make regular deposits into this account for a set period of time. After that, the debt relief company will use the money in the account to negotiate or settle with your creditors.

Options for debt relief

Consider your main options for debt relief instead of negotiating lower rates by yourself.

  • Debt settlement. A debt settlement company can negotiate with your creditors to settle your debts for less than what you owe. To do this, you’ll need to stop making payments and save that money separately. However, keep in mind that this could harm your credit.
  • Debt management plans. A debt management plan allows you to save money in a designated account and have a credit counseling agency distribute the funds to your creditors, enabling you to pay off all of your debts completely.
  • Debt consolidation. Consolidating your debt is ideal for individuals with strong credit as it can help you secure a lower interest rate than what was initially agreed upon. However, watch out for any fees when comparing these products.

Next steps

If you’re having trouble paying your monthly bills despite trying to handle them yourself, consider looking into debt relief options. The best choice will vary based on your financial circumstances and goals. It’s important to compare different options to find the one that will help you avoid future financial difficulties.

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