debt relief program

Looking for a program that will help you get out of debt? Some of the programs in the market today are more likely to make money for a company than helping with your debt relief. Educate yourself about your options before choosing a path. There are four main types of debt relief programs that are available for you:

First, debt consolidation is a process of taking a loan – either a personal loan, a home equity loan or cash-out refinance – and use that money to pay off all your various credit card, medical or student loan bills, for example. Another option is debt management, where you work with credit counseling agency to negotiate with creditors to reduce what you owe. You pay directly to your credit counselor, who distributes your payments as agreed each month, often without fees.

A third option is called debt settlement, where you stop paying your creditors all together and instead put your payments in a fund overseen by a company that then tries to play hardball. The idea here is your creditors may fear they will get nothing from you, so they’ll be more willing to negotiate with the company. A final option is bankruptcy, where you would eliminate much of your debt through government protection.

Some of these debt relief options will be better for you than others. Let’s look at four tips you should consider.

What Kind of Debt Do You Have?

Although it may feel the same when you get the bills or calls from collectors, each kind of debt is different when it comes to determining the best path for debt relief. If you have federal student loans, child support debt or secured loans on your car or home, you will not be able to erase them with bankruptcy or a debt settlement plan.

Let’s Talk Fees

Some of these options have a lot of fees – so much that you may end up even more than you did at the beginning of your efforts to get debt-free! If you decide to file bankruptcy, you will likely need to hire an attorney to process the paperwork. Debt settlement companies sometimes charge an upfront fee for their services, and the process is not always successful. It’s also important to read the fine print when applying for a personal loan or a cash-out refinance for debt consolidation. You don’t want to end up paying more in interest or closing fees than the consolidation process would benefit you in the short term.

How Long Will It Take?

Most people struggle with completing debt settlement or debt management plans because it requires them to live without credit cards as they work through the process. Debt consolidation may mean that you will be paying off your new loan longer but at a lower rate. Be realistic about your budgeting skills and lifestyle. To stay out of debt after you begin a debt relief plan, you will need to make major changes in your financial habits. But change can take time, so whatever you choose be sure you can complete it. Otherwise, you may find yourself in deeper debt and responsible for major fees.

Mind Your Credit Score

Some debt relief plans can severely impact your credit score. Bankruptcy and debt settlement plans, in particular, dramatically lower your credit score and make it difficult to take out loans for cars, homes or personal use for years. However, if completed properly, debt consolidation and management can actually improve your credit by allowing you to pay off your high-interest bills in a more manageable manner.

Have more questions about your debt relief options? Talk with a financial professional by clicking on to now.