Debt Relief Programs Explained

Everyone’s debts, personal income and goals can vary. Debt relief programs are designed to match your specific debt types, income level and long term goals. This is why you will find many types of debt relief programs to choose from. Take a read through the pro’s and con’s of the most widely accepted debt relief programs below to learn which may be best suited for your situation.

Debt Settlement Programs

Debt Settlement programs also known as debt negotiation programs are specifically targeted to deal with unsecured debts such as credit cards. The general model for this program is that the consumer has credit card debt, medical bills or other unsecured debts they are not able to pay and want an alternative to filing bankruptcy.  Unsecured creditors are generally last in line to collect from a consumer if they file for bankruptcy. Therefore if a consumer files for bankruptcy, they are at a high risk to collect ZERO of the amount due to them.  Reason stands that if the credit card debt is the primary reason for the consumer to file bankruptcy, if the creditor is able to significantly reduce that debt so the consumer can pay it off, then they can avoid bankruptcy and the creditor recovers at least a portion of the debt due to them. This is “settling a debt”.  So how do you work with a credit card company to reduce and settle a debt? This is where a professional debt settlement company can help.  These are professionals who have ample experience in working with creditors to settle debts of a consumer.

Credit Counseling Programs

Credit Counseling programs are almost always the first part of a two part service offered by credit counseling companies. A credit counseling company will offer free consumer financial education as well as a free credit counseling session to evaluate your situation and offer solutions. These counseling sessions are mainly geared to helping people with common debts like credit cards, utility bills, loans, car loans, medical bills and more. They are not specialists in more complex areas of debt like tax law, home foreclosure, investment or business losses, although they will likely be able to refer you to an expert in the appropriate area.  Your credit counseling company will bring together a budget to see if your able to pay your bills on time through better money management, or if your expenses far exceed your income and you need to gain relief from your creditors. In the case of the latter, they may recommend you join a debt management program, which is a service that is NOT free, but is low cost. Read more below:

Debt Management Programs

Debt management services have agreements with your creditors to make concessions on your debts. These concessions may include lowering your interest rates, reducing or removing late fees and over the limit fees. They do all this with the goal of lowering your monthly bill so that you are able to make on-time payments and stop falling further into debt… headed towards bankruptcy. Your debt management company will tell you what your new monthly payment will be. You will be sending a payment to cover all your bills in the program to your debt management company and they in-turn will pay your creditors the amounts due. So although your debts are not actually consolidated, in a way your payment IS, because now you only have to pay one bill and all those bills in the program get paid.

Debt Consolidation Programs

Debt consolidation is a process by which a person with a number of high interest loans, will take out a low interest loan, often a home equity loan, to pay off their very high interest loans – credit cards etc. By doing this they have essentially refinanced their debts at a lower interest rate. They have also “consolidated” all their debts into just a single debt and thus a single payment to the newly established loan.

The drawback of a debt consolidation loan is that the consumer is turning an unsecured debt into a secured debt. With unsecured debts like credit cards if you default, the creditor can cancel your card, put the bill into collections and damage your credit score.  With a home equity based consolidation loan, the loan is now backed by your home, so if you fail to make payments your home could be foreclosed upon. Turning an unsecured debt into a secured debt backed by an asset means you put that asset at risk.

Debt Validation Programs

Debt validation programs offer to review your legal contract with any creditor to see if there are any parts of it that may warrant the entire agreement null and void.  If they find a violation they can attempt to negotiate with that creditor or take them to court in order to dismiss that debt. Debt validation companies mainly focus on legal contracts for credit cards, auto loans and on occasion home loans.

Debt Types: Credit Cards, Auto Loans – a few companies will try to validate any contract.
Aggressiveness: this is a very aggressive legal process

Tax Debt Relief Programs

When consumers owe Federal back taxes or State back taxes penalties and interest can add up fast! Fortunately, the IRS offers programs to help tax payers get back on top of their taxes due. Unfortunately, just like all taxes determining what kind of relief you qualify for and how to apply for it can be daunting.  In most cases a solid review of your past tax returns is necessary and an assessment of your current finances is required to qualify for some programs.  This is why a good tax debt relief service will also be Certified Public Accountants, Tax Accountants or Tax Lawyers.

There is very good news however;

Tax relief programs are part of the tax code, so getting help is just a matter of doing the paperwork for the best tax program offered by the IRS for you. You can get in touch with a tax debt relief company here.

Student Loan Relief Programs

The cost of college has increased faster and higher than nearly any other expense consumers have faced over the past 40 years. The result has been more students taking out more student loans and graduating with burdensome student loan debts they can hardly pay. Student loan debt relief is in high demand, however the type of relief you may have available depends upon the type of loan you have taken out.

Federally Backed Student Loans

Private Loans

Secured Loans (home equity loans)

Filing For Bankruptcy

The term Bankruptcy has developed a very bad reputation, but honestly, it is a very reasonable and fair solution to a dire financial situation. People and businesses who file for bankruptcy are rarely “bad people” or “deadbeats” the most common reason for filing bankruptcy is because of an unexpected medical event that depleted all savings and terminated gainful employment. That is NOT a deadbeat.  So don’t be concerned about the negative stigma, explore what bankruptcy is, who it is for and IF it makes sense in your situation. We are not bankruptcy attorneys and we’re not giving legal advice here, just encouragement to explore and understand your options – Knowledge is power.