Is Debt Relief For You?

With millions of Americans filing bankruptcy and credit card charge offs increasing by the quarter, more and more consumers are in desperate need of debt relief. The main bankruptcy alternatives available to consumers are debt settlement, also known as debt negotiation or debt reduction, and credit counseling, also known as debt consolidation or debt counseling. Both programs have their advantages and disadvantages. With debt settlement a consumer can become debt free within 12-30 months, reduce their debt owed (not just the interest), and dramatically lower their monthly payment. In a credit counseling program, consumers are able to lower their interest and become debt free much faster than would otherwise be possible by just making the minimum payments. For consumers who are feeling overwhelmed or buried by their monthly payments, both debt relief options serve a good purpose and can help clients avoid bankruptcy.

One downside of both programs, however, is your enrollment will most likely affect your credit negatively (assuming you’re not already severely past due), oftentimes making you unlendable until the debts are paid, sometimes longer. This being the case, all consumers should consider whether they’re actually in need of debt relief, or if their debt situation can be corrected by better budgeting or a low interest loan instead. Before you make any decision, add up all of your debts and the minimum monthly payments. Add to that any other expenses that you may have on a month to month basis like groceries, utilities, mortgage payments, car payments. Be sure to leave ample room for miscellaneous expenses that will inevitably come up from time to time (car repairs, taxes, home repairs, etc.). Now add up your income and compare it to all of your expenses. If you’re left with enough money every month to pay a considerable amount more than your minimum payments, chances are debt relief is not needed. If not, you should begin your search for an appropriate solution.

Here are some questions to consider before enrolling in a debt reduction or credit counseling program:

-Is my situation the result of overspending or a financial hardship? A financial hardship is any unforeseen circumstance that may have had a large influence on your ability to pay off your debt. Some common examples are divorce, medical issues, and a reduction income. Most consumers who fall under the “financial hardship” umbrella are great fits for debt relief. If your situation is the result of overspending primarily, try to cut back on your unnecessary expenses before you seek outside help. If you find that you still are not able to reduce your debt or afford your payments, then you should start considering whether debt negotiation or credit counseling is a better fit.

-Do I have equity in my home? If so, do I have the credit to get a home equity loan? And if I did tap into my equity, would I be able to afford the payment? Obviously the last thing you want to do is consolidate your credit card debt in a mortgage, fall behind with that and end up losing your home when numerous bankruptcy alternatives were available to you. Another thing to consider is whether doing this will actually correct the underlying problem of overspending or not budgeting properly. One upside of the negative credit impact of credit counseling and debt settlement is it forces people to live within their means by closing their credit card accounts and not being able to take out any other loans. Oftentimes it instills the financial discipline that many consumers lack.

As with anything, proper education and thorough planning is imperative before choosing debt reduction or credit counseling. If you would like to learn about what option is best for you, please call (877) 274-1260 for a free consultation, or or you can fill out a form and we’ll contact you as soon as possible.