The Benefits of Debt Relief Programs
Debt relief can have a dramatic impact on your debt, allowing you to get back on your feet more quickly. However, it is not a magic wand. Debt relief programs are not the right financial solution for everyone, which means you need to understand the consequences before diving in.
Debt relief programs could come in the form of a bankruptcy, changing your interest rate to lower your payments, or asking creditors to accept a partial settlement instead of the full amount you owe. All of these options can have an effect on your credit.
When to Seek Debt Relief
Debt relief is not a pain-free, easy fix. If you have any traditional means to handle your debt, you should explore those first. However, debt relief may be a good option for you if:
- You have no chance of repaying the debt that is unsecured such as medical bills, credit cards, or personal loans within a five-year period, even if you try your best to cut spending.
- The total of your unsecured debt balance is equal to over half of your gross income.
Debt relief programs may be your best bet to get a fresh start, but there are plenty of scammers in the industry just waiting to take what little money you have. Before entering any agreement, be sure you know what you need to qualify, the fees you will pay, tax implications of the program, and what creditors will be paid and how much.
Relief Through Debt Management Programs
A debt management plan will allow you to pay all of your unsecured debts but will reduce the fees and interest rates in most situations. You will make one payment each month to the agency in which you create your plan and they will distribute the funds to your creditors. Your credit card accounts will likely be closed, and you will not be able to get additional cards until the plan is completed. Many people never complete their program.
Debt management programs do not actually affect your credit score, but closing your accounts can hurt it. You can, however, apply for credit again after the plan is completed. Missing payments can get you removed from the debt management program, and you need to be sure that you pick an agency that has been accredited by the Financial Counseling Association of America or the National Foundation for Credit Counseling.
Debt Relief Through Bankruptcy
If you do not think you will be able to pay your debt settlement program as scheduled, you may want to talk to a bankruptcy attorney. The most common type of bankruptcy is Chapter 7 and can erase most unsecured debt. It is important to understand, however, that it will not erase child support obligations, taxes owed, or student loans. It will give your credit report a hit but will be finalized in three to four months.
Contact an Experienced Bankruptcy Attorney Today
If you have questions about debt management programs or bankruptcy, the attorneys at Cornwell Law Firm can help. We have years of experience dedicated to helping our clients get back on their feet financially, and we can help you too. Contact us today to schedule a consultation.