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5 Primary Options for Debt Relief

Debt Management • by Creditgenie • 15 November 2018

5 Primary Options for Debt Relief

 If you are having financial difficulty due to mounting debt, your first step toward recovery is to take decisive action to get yourself out of debt. Such action is formally known as debt relief. Debt relief is the reorganisation of existing debt in any shape or form, so as to provide the indebted party with a measure of relief, either fully or partially. In other words, debt relief is a means of lifting the burden of debt from your shoulders and making it more manageable for you to bear.

The path to achieving financial freedom is not one-size-fits-all. There are various options available for the average debtor and each of them has their own pros and cons. With the assistance of a financial expert or a debt councillor, you can find the most suitable option agreeable to you and also acceptable to your creditor.

Any of these 5 debt relief options could potentially lead you to a debt-free life but they have various effects on your finances, credit report and history. You need to approach each one with caution and careful analysis. One or two of these options will require the help of an accredited debt relief expert. But for those that do not have that need, you may want to at least have support from a financial adviser. Here are the options available to you:

  1. Paying the Monthly Balance

The first of the debt relief options is the most obvious and least complicated. It involves a disciplined way of paying off your debt on a monthly basis. The goal here is to pay off at least the minimum payment requirement. But to succeed in this, you have to aim for paying more than that amount. Otherwise, it will take you a really long time to finish.

The great thing about this option is you will not be burdened by late payment fees and high interest rates. If you maintain the habit of paying on time, your credit score will not be negatively affected. Although this option will take you a longer time to finish paying your debts, unless you can pay off more than the minimum due.

  1. Debt Settlement

The next option is debt settlement. This involves the help of a debt settlement agency or a debt relief company. The idea is they will negotiate on your behalf so the creditor will agree to a lower outstanding amount that you have to pay. This is usually a certain percentage of your original balance. When you have paid that off and you do so diligently, the rest of the debt will be written off.

Debt settlement companies, also sometimes called “debt relief” or “debt adjusting” companies, often claim they can negotiate with your creditors to reduce the amount you owe. Consider all of your options, including negotiating directly with the creditor or debt collector yourself, before agreeing to work with a debt settlement company, as there are several risks that you should consider. Using debt settlement services may have a negative impact on your credit score and your ability to get credit in the future. While you are involved in a debt settlement agreement, expect that your credit report will be affected negatively as their methods often encourage defaulting on monthly payments to your creditors in orde to enter the ‘’negotiation’’ phase.

The key to succeeding in this form of debt relief is to hire  the best negotiator to be your champion. While you can do this yourself, the expertise and negotiating skills of a debt relief expert will go a long way to achieving the desired result.

  1. Debt Consolidation Loan

A third debt relief option to consider is a debt consolidation loan. The idea of ‘another loan’ might sound like a terrible idea, but a debt consolidation loan does not add to your existing debt - it replaces it. The goal here is to make your debt more manageable by replacing several debts with a single, larger loan.  

 The benefit of this debt relief option is easy management of debts because you only focus on one payment. You should only opt for this if the monthly instalment is lower than the total cost of paying your monthly debt balances. While this consolidated loan is likely to reduce your monthly repayments .it may well come at a higher interest rate so aim to pay off your debt in as short a time as possible. Once your collective debt has been absorbed into a consolidation loan, your loan account will be closed, but your credit accounts, such as store and credit card accounts, will stay open. If you've been struggling with your debt, you should really consider closing these as well.

This option will also have a negative effect on your credit report but it will soon improve after you have settled your debts and have diligently paid for them on time. Stick to your budget plan and the payment terms of the new loan to ensure maximum impact of this option.

  1. Debt Management

The fourth debt relief option is known as debt management or credit counselling. This involves enrolling in a program that will provide you with formal debt counselling. It works the same way as a debt settlement but the funds will be handled by the debt management company. They will consolidate your debt and pay off your creditors for you – getting the payments from the account that you will be funding of course. They will also help you lower the interest rate, monthly payments and the outstanding balance by negotiating with your creditors. This will also affect your credit report so do not be surprised if you find your score lower than before.

The difference from the debt settlement company is the debt management company will provide you with counselling services as well, which will assist you in addressing the root course of your financial difficulties and assit you in planning for managing spending in future.

  1. Bankruptcy

The last and least desired option by debtors and even financial experts and creditors is bankruptcy. This is when you are declared completely unable to pay your debts. A bankruptcy court is involved here and your assets are in danger of being taken from you by your creditors. Even that is not assurance that your assets will be able to pay your creditors in full.

This option will have a drastic negative effect on your credit report, credit score and credit history, potentially limiting your chances of obtaining credit in future.

 Creditgenie’s 4-in-1 Plan allows our memebers to access our Financial Counselling Programme which includes debt counselling and debt management services as well as easy access to debt consolidations loans.  Creditgenie members entering a formal debt review process may be assisted by one of our NCR accredited debt counsellors at discounted rates and the costs of this process will be included in your repayment plan and will not have any further negative financial impact on you.  Find out more about the Creditgenie 4-in-1 Plan today and begin your journey back to financial freedom.