4 Effective Tips to Get Personal Loan Debt Relief in 2023
9 MIN READ
Published April 06, 2023 | Updated October 09, 2023
Those who are facing financial hardship often turn to personal loans to deal with expenses. This can sometimes backfire, and you may end up with more debt than you started with. Fortunately, personal loan debt relief can help.
If you have been facing job loss or financial hardship, you may have turned to personal loans as a solution.
While this can seem like an easy and quick way to cope with a temporary financial setback, it can also quickly spiral out of control.
Fortunately, personal loan debt relief can help.
You are not alone in dealing with personal loan debt. In Q2 2022, Americans owed $192 billion in personal loan balances.
Whether you have borrowed funds to pay off debts, deal with unexpected expenses, or for home improvement, there are multiple options available in 2023 to pay off your personal loans.
Can Personal Loans be Forgiven?
Personal loan lenders are not inclined to forgive loans, so these options are not easy to come by.
If you are struggling to pay the minimum payments on your personal loans, there are other options available such as debt consolidation, debt management, and debt settlement.
Personal loan debt forgiveness is when a lender erases or forgives all or some of your debt.
It is important to note that debt forgiveness will not necessarily erase all of your debt. In most cases, however, settling a personal loan debt for less than what you owe is possible.
Can Personal Loans be Included in Debt Relief?
Most debt relief programs are geared towards unsecured debts, where debts are not backed by collateral.
Personal loans are usually borrowed to pay down debt, refinance high-interest credit card debt, make major purchases, and for home improvements.
A majority of personal loan accounts are subprime borrowers from online lenders, so it isn’t surprising that serious delinquency rates are forecast to increase from 3.37% in Q2 2022, up to 4.3% in 2023. The rising inflation rates keep the demand for personal loans high.
If you have accumulated significant unsecured debt, including personal loans, you may be eligible for debt relief programs.
What To Do to Pay Your Personal Loans
Having debt hanging over your head can have a negative impact on your well-being. Fortunately, there are a number of things you can do to pay off your personal loans faster.
Make Extra Payments
One of the easiest and fastest ways to deal with personal loan debt is by making more than the minimum payment each month.
This will help you pay off the loan faster and save money on the loan interest.
Take a look at your budget and determine how much extra you can pay towards your personal loans. You can set up autopay in your bank account for the extra payments.
This option will only work for borrowers who have the means and extra funds to pay their loans.
Refinance Your Loan
Refinancing your personal loan to a lower-interest loan can help you save a considerable amount in interest. It can also help you pay off your debt faster.
Shop around for loan options that offer a lower APR range than what you are currently paying and compare all your options.
Make sure to check if there are any prepayment penalties before you borrow a loan.
If you have excellent credit, you may be able to discover many refinancing options with much lower rates. Ask if you’ll require co-signers to qualify for a refinance loan.
Another way to go about it is through personal loan debt consolidation. Refinancing can not only lower your interest rate but also make the monthly payments predictable.
Research your loan offers and get prequalification to find the best possible personal loan rates.
The loan application process is usually very quick and straightforward. Loan funds may be disbursed on the next business day in many cases.
A 0% balance transfer credit card is another option. If you go this route, it is important to check if there are any balance transfer fees involved, and ensure you can pay the balance off before the 0% interest period expires.
Talk to Your Lenders
Sometimes, all you need are small changes to your repayment terms to get a handle on your financial situation.
Reach out to your personal loan lender and explain your situation.
Some lenders and banks may have a hardship program if you have a good credit history, but eligibility criteria can vary between lenders.
A hardship program may provide some relief for temporary situations like illness or unemployment.
If you are eligible for a hardship program and have a good payment history, your creditor may waive off fees or offer an affordable fixed interest rate to make repayment manageable.
Seek Personal Loan Debt Relief
If none of the options listed above work for you, or if you are really struggling to pay off your personal debt, it may be time to take some serious measures.
Consider seeking debt resolution programs. Ask your debt relief company about the minimum credit score required to enroll in a program.
Debt management plans offered by nonprofit or for-profit organizations can help you negotiate new repayment terms with your lenders.
They can help negotiate lower interest rates and waive late payments or penalties.
You may have to close some lines of credit and will not be able to open new ones while you are enrolled in the program.
Debt management usually does not involve loan approval, so it is suitable for those with poor credit.
Personal loan debt settlement is another option where you can work with an organization who can negotiate a settlement on your behalf. This works by coming to an agreement regarding your account balance, and settling up to about 50% of your debt in exchange for the remaining amount you owe paid as a lump sum.
A last resort option is to file for Chapter 7 or Chapter 13 bankruptcy, which can help you restructure your debt or liquidate your assets to pay off your debts. The remaining unsecured debts can be erased.
How Much Can Debt Relief From a Personal Loan Cost?
Costs of personal loan debt relief will vary depending on which option you choose.
For example, debt settlement companies typically charge 15% to 25% of enrolled debts. This fee can only be charged after your debt is settled.
Debt settlement also involves tax costs. Forgiven tax is generally considered to be taxable income by the IRS. However, if you have more liabilities than assets, the IRS can consider you insolvent. If you can demonstrate insolvency, you may not have to pay taxes.
If you opt for monthly monitoring services through a credit counseling agency, monthly costs will typically be $25-$50. An hourly session with a credit counselor for a detailed overview of your finances may cost $75+.
Does Personal Debt Relief Hurt Your Credit?
Personal debt relief may impact your credit scores, depending on the option you choose and what your score was to begin with.
If you are already behind on your personal loan payments or have incurred late fees, or are maxed out on your credit cards, you may already have bad credit.
Personal loan debt settlement may provide you a way out of a difficult situation, even though it may negatively impact your credit report.
Programs like credit counseling and debt management plans have minimal or no impact on your credit. These programs can also help you improve your credit if you stick to the program and make timely debt payments.
A counselor can take a look at your credit profile and provide suggestions on the best debt relief program for you.
Weigh all your options carefully before you opt for a personal loan debt relief option.
You should also continue to monitor your credit regularly to keep track of changes. Many credit bureaus offer free credit reports annually.
How to Get All Your Debt Into One Single Payment
If your credit scores are good, but your personal loan debts feel overwhelming, you may want to consider personal loan consolidation.
This will allow you to consolidate all your debts into a new loan and make a single payment each month.
A fixed-rate consolidation loan with a longer loan term and lower annual percentage rate can be helpful if you are dealing with high-interest debts.
This means you can save hundreds of dollars on interest and pay off your debt faster.
Consolidation loans usually require a credit check. Credit unions and banks will typically look at your debt-to-income ratio and your creditworthiness before approving your personal loan.
With so many different personal loan debt relief options available, it is easier than ever to ease your financial burdens.
A reputed, experienced debt relief company can help you find a debt relief option that is ideal for your current circumstances.
TurboDebt offers advising, consultation, and planning services to help you create a feasible debt relief and repayment plan.
We provide multiple debt management options so you can achieve your financial goals.