The crippling, burdensome debts have been overwhelming people, and, therefore, they are looking for some of the best debt resolution programs.
If you want to live a financially healthy life and plan for an early retirement, then managing your debts is essential.
You can incur debts for a variety of reasons, such as repairs, medical bills, divorce, poor money management, gambling, divorce, etc.
Debts bring unwarranted financial stress as well as mental stress in your life.
Also, the high rates of interest mean that your debts are growing swiftly.
Hence, you should aim to pay off debts as quickly as you can. Here you will find all you need to know about debts and suitable programs to get out of them.
What Debt Hurts Your Finance the Most?
Prior to looking for the best debt resolution programs, it would be wise to realize what debts hurt you the most.
For instance, credit cards are an extremely convenient method to pay for your medical bills, groceries, luxurious items, etc.
Sadly, they come at a steep price that many people fail to recognize. Double-digit interest rates, usually ranging from 16% to 30%, are charged by all financial institutions.
Circumstances can often cause you to miss credit card payments, for example, job loss, childcare, inflation, unexpected expenses, etc.
So, if you are not able to pay off your credit card dues by the end of the month, you are simply worsening your debt.
Recently, CreditCards.com conducted a survey that showed that 62% of credit card holders could miss a few or all of their monthly payments. The remaining 38% were lagging behind on their dues, or they were presently in the collection.
On the other hand, CNBC reported that credit card debts were well over $1 trillion in 2017.
In addition, 86 out of 100 Americans who already have a card debt or had one regret their choices.
These statistics vividly show that debts can become overwhelming in a short period of time.
Debts, especially those with high-interest rates, can hit a gigantic blow to your humble finances.
As a result, you can find yourself in a challenging position if you are not keeping up with your finances properly.
If you are under a crushing amount of debt that keeps on growing, you should look for the best debt resolution programs to keep yourself debt-free.
Here’s a quick tip: Credit card is not a suitable option to charge your college tuition, medical bills, mortgage payments, taxes, stock and other investment payments, and luxurious items that you cannot pay for by the end of the month.
If you cannot pay the dues on time, then the debt with its double-digit interest rates will rip your finances apart and put you in a worse place.
What Is a Debt Resolution or Management Program?
Everyone wants to get rid of their debts in one way or another.
Debt relief, debt resolution, debt management, debt settlement, etc., convey the same idea.
A debt resolution company will contact your lenders – on your behalf – to negotiate a deal and get you out of debt.
These companies usually offer some of the best debt resolution programs in the market to help you become debt-free.
Every company follows its own set of policies. As a result, you also need to take precautions before selecting one for yourself.
Functions of a Debt Management Program
Whenever you choose a specific debt resolution agency and enroll into one of their programs, you enlist their help to manage your debts.
The company might take all your debts together and pool them into one monthly payment that you can manage easily.
Apart from that, they can also try to negotiate with your lenders to lower your rate of interest, reduce your monthly payments, waive late fees, etc.
Keep in mind that most companies do not deal with secured loans or federal student loans.
So, you will need to look for companies that provide the best debt resolution programs which fit your needs perfectly.
Things to Be Aware Of
You are likely to be tempted to choose a debt resolution company quickly, get on board with the best debt resolution programs and get rid of your debts.
But, being quick might cost you in the long run. Here are some things that you should look out for in every step of the way.
- Non-Profit Companies Make Profit
While the business might market itself as a non-profit, philanthropic company, they are certainly making profits to stay afloat.
They are in the business to make money. So, most of them charge modest fees.
Therefore, you should carefully look into your options before selecting one. Check if the agency has high rates, is government-approved, and trustworthy.
If yes, you can work with them. Also, check if they ask for upfront fees. If they do, then avoid them.
- Do-It-Yourself (DIY)
Debt relief companies negotiate deals with your creditors on your behalf.
Chances are, you will be able to do that yourself.
Or, you could take measures, such as debt consolidation, debt avalanche, debt snowball, etc., to settle your loans by yourself.
- A Dip in Credit Score
No matter what company you hire, you might not be able to save your credit score. In some cases, people’s credit scores dropped.
In contrast, several people saw a rise in their credit scores too.
The argument is still continuing about the effectiveness of debt management agencies and the impact they have on your credit score.
- Loss of Future Credit
Once you have enrolled in a program with an agency, you will be barred from availing of new credit lines.
If you pursue a new credit line, the deal that the agency negotiated for you might crash.
- A Fall in Expenses
Yes, you can see a significant decrease in your expenses in terms of fees and interest.
The agency might be able to waive all or partial fees and penalties for you.
They might also be able to reduce your interest rates and the monthly payments for you.
What Are the Best Debt Resolution Programs That You Can Pursue by Yourself?
There are several ways to manage your debts effectively without harming your finances. Here’s how:
- Debt Consolidation
It involves combining or consolidating multiple debts into one.
So, instead of increasing your debts and accruing high interest rates on it, you can turn them into new mortgage with a low rate of interest.
Mortgage rates are generally lower than credit card interest rates or other rates.
As such, you could save an ample amount of money over the years. In addition, you can turn your complete focus to settling one debt instead of paying for multiple debts.
In most cases, you can arrange debt consolidation by yourself without the need for any debt resolution company.
- Cash-out Refinance
It is another excellent method to pay off debts with high rates of interest.
The idea here is to refinance your existing mortgage. So, you collect the cash from the financial institution and pay off significant debts.
In layman’s terms, you refinance your existing loan for a greater amount than you already owe to the bank.
For example, your current debt is $60,000. Your house is appraised for $100,000. So, your equity in your home is $100,000 – $60,000 = $40,000.
However, you will not get the entire $40,000 in cash. Most financial institutions only allow the borrowers to receive 80% of the total value.
So, you could get $100,000 * 80% = $80,000. Since you already have a debt of $60,000, you will get $80,000 – $60,000 = $20,000 in cash.
As a result, you can use the $20,000 to pay off a significant debt, such as your credit card bill.
- First Lien Home Equity Line of Credit
It is indeed one of the best debt resolution programs for those people who have a good credit report.
If you manage your debts well enough, there are chances that you will not have to refinance your home.
This method lets you gain access to your house’s equity without refinancing it first.
If you pursue the first lien home equity line of credit, you will be able to settle multiple debts and save a significant amount of money in interest rates.
The Best Debt Resolution Programs for Which You Need to Hire a Debt Management Company
While various companies offer diverse programs for you, the basic idea remains the same.
The program you choose depends on the condition of your debt and your credit score. Here are the programs you can select to get rid of debts.
- Debt Settlement
If you are having trouble managing your debts, you can hire a debt resolution company to help negotiate or settle your debts for you.
The option is only available for unsecured loans, such as personal loans or credit cards.
Home loans and automobile loans do not fall under this category because financial institutions can repossess or foreclose these assets.
The federal student loans are exempt from this category too.
Once you hire the company, they will suggest that you stop making payments and keep these monthly payments in a separate savings account.
As soon as you do that, you will receive an overwhelming amount of calls from collectors.
Plus, your credit score will take a hit. In the meantime, the company will contact your lenders and try to negotiate a deal where you pay less than what you owe to settle the debts.
Bankruptcy, specifically chapter 13, should be considered as a last resort.
While it may seem like a lucrative way out, it can ruin your chances of securing loans in the future.
You should only give this method a thought if more than 40% of your annual income is the amount of your debt.
While you might be able to repair your credit score by 6 months, the bankruptcy tag will remain in your records for as long as 10 years.
Steps to Enroll in One of the Programs
There are several steps involved in enrolling into the correct program and making it work. It is a brief outline to give you a clear perspective.
- Find a Reliable Company
Not all companies deal with all types of debts. So, find the one that handles the type of debts that you have.
Keep in mind that there are certain safety measures that you need to take before choosing any company.
- Meeting the Counselor
Once you find your preferred company, they will assign you a financial counselor.
You and the counselor will go through your financial situation, and they will assess it carefully.
If they think you can make it without enrolling in any program, they will probably help you prepare a tight budget that will help you pay off your debts on time.
They might also ask you to close your credit accounts to avoid incurring accumulating more debts.
- Preparing a Debt Management Plan (DMP)
The credit counselor will try to reduce your monthly payments, interest rates, or waive fees and penalties, etc., by bargaining with your lenders.
Once your lenders agree to the DMP proposed by your counselor, the counselor will come up with the best debt resolution programs for you and will inform you of your new monthly plans, budget, etc.
So, you will make one monthly payment to your credit counselor instead of making several payments to different creditors.
Once you make the payment, the counselor will pay your creditors. However, keep in mind that you may have to pay a certain amount to fees to your credit counselor.
- Other Perks
The counselor can provide other benefits too. These might include a free credit report, a personalized budget, and suggestions for managing your money better.
Pride often gets in the way of making well-informed decisions. So, if you are struggling to manage your finances, there is no shame in asking for help.
Let go of your pride and get help. Doing so will mean that you will not fall into the vicious debt cycle.
But, if you are already into debt, then you should get a better understanding of your existing debts and try to manage them accordingly.
It would be wise to settle debts with high-interest rates first (debt avalanche).
Looking for the best debt resolution programs and enrolling in one of them could be an excellent way to seek help.
Yet, keep in mind that you will need to do your due diligence before enlisting a company to help you.
In some cases, you might be able to DIY and get your act together without needing the help of a third party.
Therefore, weigh your options carefully before making a well-informed decision.