How Do Debt Relief Programs Really Work?

If you’ve got debt, you’re not alone. As student loans, medical costs, and overall cost of living continues to rise in America, consumer debt has soared to more than $12 trillion. Hard-working folks turn to credit cards and other means to try to pay off what they owe, but often the high interest rates just make things worse. Thankfully, there are alternatives. A debt relief program is designed to improve financial health over time. Let’s take a look at how these programs can lead to debt relief and even freedom.


Have an Expert on Your Side

Debt relief programs, also known as debt settlement, start when a debtor connects with an experienced negotiator who knows how to work with creditors. You will stop paying your debt directly and instead begin adding to an account. Often, the negotiator will work with your creditors to reduce the overall debt, and work with you to strategize the best ways to find freedom from debt. An attractive part of this process is that there are laws that forbid creditors from contacting you directly once you begin a debt relief program.


Best for Large Debt, but There’s a Catch

In general, creditors will not settle small debts, so this process isn’t for everyone. And unfortunately, when you stop paying your bills and leave the work to a negotiator, it’s possible that the creditor will sue you. If you end up paying significantly less than what you originally owed, there are also tax implications, since that savings will be seen as income. While debt relief programs can be a saving grace for many, it’s vital to know the fees that are associated with the work so that there are no surprises.


Different Than Debt Consolidation

Many people confuse debt relief with debt consolidation. Debt settlement companies are not always successful in reducing all of your debt. Debt consolidation, meanwhile, is another method that many experts prefer. There are many programs that are considered debt consolidation, including homeowners applying for a cash-out refinance to pay off existing debt. There are also personal loans that can help reduce your interest rates and offer a path to freedom from debt.  


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