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When Is It Time To Apply For Debt Relief Programs

When Is It Time To Apply For Debt Relief Programs

Are you struggling with a tremendous amount of debt?  If that’s the case, you’ll be glad to know that debt relief programs are put in place to help you with such an issue. Therefore, you’ll be less concerned about your financial debt overburdening you. Through debt management programs, you’ll be able to settle your debt at more manageable rates. This is either through renegotiating your debt or replacing the new debt with a new loan that comes with different terms, such as extended loan terms, waived fees and reduced interest rates.

Thanks to debt relief programs, you’ll be able to avoid bankruptcy. However, applying for debt relief programs isn’t meant for everyone since, despite its benefits, it does come with some risks. Below is an overview of the times you need to consider applying for debt relief. Read on!

When Should You Consider Debt Relief? 

While debt relief programs aren’t advised, there are times when you’re left with no other option. Some of the instances when you should consider seeking debt relief include:

  • The sum of your unsettled debt is equivalent to half or over your total gross income
  • There’s no hope of paying back the unpaid unsecured debt, such as personal loans, medical bills, and credit cards, within five years, regardless of whether you considerably cut down your spending

If you find yourself in either of these two situations, then a debt relief program might be necessary. And, although this will undoubtedly affect your credit rating, this is necessary since it will signal the start of a clean slate.

You should consider several types of debt relief programs to help you pay off the debts at an affordable rate and eventually be debt-free. The most popular options you should consider are:

1. Filing For Bankruptcy

When struggling to settle all or part of an unsecured loan, then filing for bankruptcy is an excellent debt relief strategy to consider. This route is advised since, in addition to settling your unpaid debt, it gives you the chance for a fresh start. There are two ways of filing for bankruptcy, and this is Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is debt relief for some of all your unpaid and unsecured debts. But, before this is granted, a credit counseling test will have to be done to prove you currently don’t earn enough money to settle the debt personally. The assets you’re required to give up during this settlement differ from one state to another. In some states, you may be required to give up your car and house.

Filing for bankruptcy gives you temporary relief from having to pay a large portion of your unsecured debt. Nonetheless, you’ll still be required to pay your student loans, tax debts, and child support.

There also is the Chapter 13 bankruptcy, where you’re given between three to five years to repay your unsettled debts. You should consider applying for Chapter 13 bankruptcy if there are assets you want to retain ownership of or earn too much money to request Chapter 7 bankruptcy. Before filing for Chapter 13 bankruptcy, you’ll need to pass credit counseling. Once your Chapter 13 lapses, any unsettled debt is discharged. But, you’ll still be expected to pay specific tax debts, child support, outstanding employee wages, alimony, your car and house payments, plus all back payments on your car and house.

2. Debt Consolidation Loan

This is a substantial personal loan that you’re given to help pay all or a large part of your outstanding unsettled debts. Debt consolidation loans are excellent debt relief plans because you get to make monthly payments. Therefore, you can easily fit the debt repayment as part of your monthly expense, and this makes it a lot simpler to follow through with the debt payoff plan.

To qualify for debt consolidation loans, you need to have an excellent credit rating for an unsecured loan. You also get the option of a secured loan where you can use collateral, for example, your car or house. For the secured loan, the interest rates are a lot more favorable. But, in the long run, you’ll end up paying greater interest than what you would have paid for the initial loan due to the extended payment period.

When Is It Time To Apply For Debt Relief Programs

3. Debt Management  

This type of debt relief entails paying the entire sum of your unsecured debts, in most cases, credit cards with either fee waived or at a lower interest rate. You’ll be expected to make payments to a credit counseling organization that will then pay your creditors. The credit counseling agency will also help you develop a suitable debt payoff plan if need be, as well as assist you in organizing and managing your finances. Thanks to this much-needed help, this debt relief program allows you to have some structure and accountability.

Takeaway 

Clearing a substantial personal debt is something that many people nowadays often have a hard time doing. Thus, it might be necessary to apply for debt relief programs to help pay back these unsettled debts. If this is an issue you also have been experiencing, this guide has highlighted the instances when applying for debt relief programs is advised. You also have insight on a few types of debt relief programs you should consider to help clear your unpaid debt.

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