Turbo Takeaways
- Consider top debt relief options such as credit counseling, debt settlement, debt consolidation, and debt management plans.
- Avoid scams by carefully vetting debt relief companies through sources like the Better Business Bureau (BBB).
- Commit to a debt relief plan and make consistent payments to end debt and reset your finances.
Dealing with Debt
If you're struggling with financial burdens from debts like student loans, credit cards, a mortgage, or personal loans, you're not alone. Rising costs for essential living expenses and a fluctuating economic environment have left many Americans feeling overwhelmed.
Thankfully, consumers can pursue a variety of debt relief options to manage and repay large unsecured balances. Keep reading to learn more about how debt relief works and determine the best option for your individual circumstances.
What Is Debt Relief?
Debt relief is a strategic approach to paying off debt balances using professional assistance. Several strategies, such as negotiating with creditors to reduce debt or consolidating multiple balances into a single payment, make debt easier to manage.
Debt relief programs can help you in several ways, such as:
- Reducing the interest rate you pay
- Securing favorable terms on a loan
- Negotiating for a reduction in the principal amount owed
- Shortening or extending repayment terms
- Having penalties or fees waived
Finding the right debt relief program depends on the kind of debt you carry, your financial habits, and your income. While there are several types of debt relief programs, the goal is always the same: to help you regain control of your finances and live debt-free.
When To Look For Debt Relief
Consider looking into debt relief as soon as you realize there’s a problem. The sooner you take action, the easier it is to overcome debt. It's also important to examine any financial habits that might create more debt while you're working hard to eliminate current balances.
Debt relief is an effective option if:
- You're having trouble managing your current debts
- You're struggling to make monthly payments on your debts
- You're carrying a balance on one or more credit card accounts
- You're behind on student loan payments.
It's also important to consider the type of debt you carry. Debts are broken into two categories: secured and unsecured. Only unsecured debt is eligible for debt relief. Let's take a closer look at the two types of debt:
- Secured debt is debt that is tied to an asset, such as your home or your car. In case of missed payments, creditors can seize the asset.
- Unsecured debt is debt not tied to an asset and thus typically carries higher interest rates. Examples of unsecured debt include credit cards, medical bills, and personal loans.
Teresa Dodson, debt expert and founder of Greenbacks Consulting, offers her opinion on using debt relief. “If you are buried in debt, it's a great option to provide you with some additional cash flow and get you out of debt at the same time,” Dodson shares.
Credit Card Debt
Credit card debt is the second-largest source of debt after mortgage debt. If you have maxed out credit cards, you may want to consider a credit card debt relief program or a similar option.
To qualify, you may need to meet certain requirements, including:
- Higher credit scores (to open a new low-APR consolidation loan or a balance transfer credit card)
- Income review (to determine if you're eligible for debt relief or bankruptcy)
- Higher debt amounts ($10,000 or more for certain debt relief programs)
Debt Relief Programs
Depending on what you currently owe and the types of debt you carry, a variety of debt relief programs could help you overcome outstanding balances.
You can try to tackle debt on your own or leverage the expertise of a debt relief company. Here's a closer look at some of the most common debt relief options available:
Debt Consolidation
Debt consolidation involves combining multiple debts into one. This can be done through a debt consolidation loan or a balance transfer credit card. With debt consolidation, you'll make only one debt payment each month.
A debt consolidation company can help you combine all your debts into a single loan at a lower interest rate. This means you'll save a considerable amount of money as you pay off your debts. Repayments are easy and straightforward because you will only be dealing with a single monthly payment.
Opening a zero-interest balance transfer credit card is also an option for consolidating moderate credit card balances. As long as you pay off your balance within the introductory period, you may find it effective to eliminate debt without incurring additional interest.
Debt Settlement
Debt settlement is a viable option when you're facing overwhelming debt and are past due on credit cards or other unsecured accounts.
Settlement involves negotiating with creditors to settle your total debt for less than what you currently owe. You’ll need to save enough funds to make a lump sum settlement and close your account once the lender accepts your offer.
Using a professional debt settlement company like TurboDebt® simplifies the debt relief process. You won't owe any fees upfront and could potentially pay up to 50% less than your original debt balance (before fees). You'll benefit from the expertise of debt relief experts, creating a customized plan that includes monthly debt payments and support to help you reach your financial goals.
Using a professional debt settlement company like TurboDebt® simplifies the debt relief process. You won't owe any fees upfront and could potentially pay up to 50% less than your original debt balance (before fees).
Debt Management Plans
Debt management plans (DMPs) allow you to enroll debts in a program and make a monthly payment to a debt management organization. Once the organization receives your funds, it distributes the money among your various creditors.
With a DMP, you don't have to open a new balance transfer credit card or take out personal loans. You'll send a payment large enough to cover debts each month. Credit counselors who oversee a DMP can also negotiate lower interest rates or waived fees to make debt repayment easier.
Credit Counseling
Credit counseling is a viable solution for discussing your finances and exploring options for getting out of debt. Certified credit counselors can offer you sound financial advice and help you decide on the best course to relieve various debt burdens.
Once you connect with a credit counselor, you'll discuss your credit history, current debts, income, and spending habits to better understand your needs and create financial goals. Many nonprofit credit counseling organizations offer affordable services to assist consumers. Some agencies also provide free or reduced services for those facing economic hardship.
What Credit Counselors Do
Credit counselors offer advice and provide financial education. They also oversee debt management programs through private or nonprofit organizations.
What About Bankruptcy?
Bankruptcy is considered a last resort for dealing with debt. After exhausting other means of debt relief, consider filing for either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy involves selling assets to pay creditors under the direction of a regional bankruptcy court. However, Chapter 7 doesn't eliminate certain debts such as student loans, back taxes, or child support payments.
In Chapter 13 bankruptcy, most of your debts are paid back over the course of a three to five-year payment plan based on what you can afford.
If you're thinking about filing for bankruptcy, consider the potential benefits and drawbacks:
Pros
- Eliminates most debts
- Provides a legal framework for debt relief
- Gives you a new start financially
Cons
- Won't eliminate student loans
- Legal fees can reach up to $10,000 for complex cases
- Negatively impacts your credit history for up to 10 years
Bankruptcy is a legal process that requires a few months to complete, and it's always wise to speak with a bankruptcy attorney to determine if it's the right option for you. While bankruptcy can have a major impact on your credit report, it may be the best available solution in certain cases.
Did You Know?
To choose the most effective debt relief option, determine how much debt you have to pay off, how much of your income you can put toward repayment, and how quickly you want to end your debt.
Is Debt Forgiveness an Option?
Debt forgiveness or debt cancellation programs are rare and generally offered to a very select group through government programs. When available, this option can help you significantly lower or erase certain debts. However, you'll need to meet certain qualifications to be eligible for debt forgiveness programs.
Based on your individual circumstances, you may be eligible for debt forgiveness programs that allow partial or complete cancellation of debt, such as the Public Service Loan Forgiveness Program. This program is available for government employees who've made a specific number of payments on certain loans.
Do-It-Yourself Debt Relief
Reducing your debt balance and interest rate requires discipline and planning. However, if you can create a detailed plan to reduce your debt, negotiate with your creditors, and stick to a payment plan, you may find success navigating the process on your own.
Start a DIY debt relief plan by contacting your creditors and explaining your circumstances. Some credit card companies offer financial hardship programs and may be willing to waive fees and lower interest rates.
You can also negotiate a debt settlement with your creditors on your own, making a lump sum payment to end your debt. However, the complexity of this process makes it easier to complete with the help of a reputable debt relief company.
Additional DIY options, like debt snowball and debt avalanche, provide a structure for managing payments and eliminating debts based on the amount you owe.
How Is Your Credit Score Affected by Debt Relief?
Debt relief can impact your credit scores, depending on your credit history and the debt relief option you choose. For example, your credit scores may already be affected if you are behind on monthly payments, your utilization rate is maxed out, and you choose to go for debt settlement.
Debt management plans and credit counseling typically have no or minimal impact on your credit. It may also help you improve your credit score if you can reduce your debts and make timely payments once you have created a new repayment plan.
It is important to research and read the terms and conditions before you opt for any credit card debt relief program or loan. Monitor your credit scores regularly to keep track of any changes.
How Much Does Debt Relief Cost?
Debt relief is often the most cost-effective way to repay debts and reset your finances. Here's a look at the typical costs of debt relief:
| Debt Relief Method | Associated Costs |
| Debt Management | DMPs charge an initial fee below $50, plus a monthly fee ranging from $20 to $30 for each account on the plan. |
| Debt Settlement | Settlement companies typically charge a service fee of %15 to 25% of your total enrolled debt. |
| Debt Consolidation | The costs of consolidating debt depend on interest rates. If you can secure a low enough rate, you'll pay less on your debt over the course of the new loan. |
| Credit Counseling | Credit counselors charge small fees or hourly rates, with some providing low or no-cost services to those in need. Some also offer monthly credit monitoring assistance ranging from $25 to $50. |
In some cases, you may need to pay taxes on relieved debt. Generally, forgiven debt is considered taxable income by the IRS. However, if you can demonstrate that you're insolvent, you may not have to pay the required taxes. The IRS will typically consider you insolvent when your total liabilities exceed your total assets.
Beware of Debt Relief Scams
Whether you choose a debt management plan, credit counseling, or other debt resolution program, it's crucial to find a reputable debt relief organization. Examine the company's website and read actual customer reviews. Verify the organization through the Better Business Bureau (BBB) to ensure it's legitimate and industry certified.
Look for the following red flags before enrolling with a debt relief organization:
- Demanding fees before providing services
- Lack of transparency about processes and costs
- Requests for access to personal information
Learn more about identifying and avoiding debt relief scams to protect yourself from fraudulent practices.
Avoid Debt Relief Scams!
Stay vigilant by checking customer reviews and reading company profiles through the Better Business Bureau.
Get Your Debt Under Control With TurboDebt®
Take the next step and make a plan to overcome your debts. At TurboDebt®, we offer debt relief programs in 44 states, as well as Puerto Rico, Guam, and the U.S. Virgin Islands.
We've proven ourselves as a trusted partner in debt relief. With over 20,000 5-star reviews, TurboDebt has helped thousands of consumers pay off their unsecured debt balances.
Get started today with a free consultation from the experts at TurboDebt®!