What Does Debt Relief Mean?

What Does Debt Relief Mean?

Sometimes, you may feel overwhelmed by debts, including student loan payments and credit card bills.    Consider looking at your debt relief options if you’re facing such overwhelming debts. Debt relief tools change the amount of debt, interest rate, or terms to help you get back on your feet. It can also involve persuading the creditor to accept less than the full amount owed.    The tools can take various forms and come with advantages and disadvantages. Before you start a debt relief program, it helps to understand its consequences. 

The Meaning of Debt Relief

Debt relief seeks to help debtors develop a strategy for settling their debts. The idea is to make debt easier to handle. Debt relief can differ depending on the type of debt you have.    For instance, you may be looking for debt consolidation if you have various debts. If you’re overwhelmed by credit card bills, you’ll be looking for credit card debt relief.  

How Debt Relief Works  

After realizing that you need help managing your debts, the next step involves identifying a credit card relief option.    You can seek debt relief if you have no hope of repaying your unsecured debts, including medical bills, personal loans, and credit card bills, within five years. You can also seek relief if your total unpaid debts are half or more of your gross income. If you have the potential to pay the debts within five years, opt for a do-it-yourself payment plan.    Debt relief can work in various ways, including:  
  • Consolidating debt
  • Loan refinancing
  • Reducing the principal amount of the debt
  • Interest rate reductions
  • Changes to credit or loan repayment terms
  You can also file for bankruptcy as a form of debt relief. However, there’re a lot of consequences associated with filing bankruptcy as a form of debt relief.   Also, debt relief alone isn’t adequate if you’re still taking other debts. You also need to check on your spending habits that are keeping you in debt. 

Debt Relief Can Worsen Your Situation

The debt relief industry isn’t free of scammers willing to milk you of the last coins you have left. Furthermore, some debtors get into debt relief programs but don’t see them to the end.   If you’re not careful, you may find yourself in a worse financial situation than before.    The right debt relief program offers you the breathing space you need to make progress again.  Before you sign up for any program, find out the following:
  • What fees do you need to pay?
  • What is required to qualify for the program?
  • What are the tax implications of the debt relief?
  • Which creditors will be paid, and how much will they receive? This helps you to track and ensure the payments go to the right people.

Does Debt Relief Affect Your Credit Score?

Although debt relief can affect your credit score and reports, the impact depends on the type of debt relief program and where the score was to start.    For instance, the debt settlement option hurts your credit score. Most of the damage is already done by the time you complete settling your debts.    On the other hand, a debt management program may have a limited impact on your credit score if the creditors continue reporting the account as paid as per the agreement.    Credit counseling may not hurt your credit score at all. On the contrary, it may raise your score if you repay your debts on time after coming up with a repayment plan.    Before you can sign up for any debt relief program, pay attention to any mention of credit score impact. It’ll also help to keep checking your credit score and reports to note any changes.  If you want to learn more about debt relief and whether you’re eligible, click here to get started.