What is a debt relief program?

Debt relief is a broad phrase encompassing a multitude of financial services that can streamline your overall debt into one manageable payment per month. Debt relief services can sometimes even get certain debts forgiven and reduce the total balance on others. Debt relief agencies focus on lowering interest rates and consolidation of credit. The primary objective of any debt relief program is to help individuals pay off debt in a responsible and budget-friendly way.

Is debt relief right for me?

The predominant question you must ask yourself in considering debt relief is, “Does my current debt situation threaten to overrun my finances and place me at further financial risk?” If the answer to this question is “yes,” debt relief can be a solution. All debt relief is not created equal and you will need to do some research into which debt relief option best suits your budgetary needs. Some solutions are more long-term than others.

Can seeking debt relief harm my credit?

There can be risk involved in working with a debt relief company. It is important to be detailed in your research of any debt relief company you choose to work with. Consult with an attorney or review the consumer reports on any agency you consider for debt relief advice. Debt relief companies use a variety of methods in seeking debt settlement and some may lower your credit score or otherwise be unfit for your needs.                   

Can I receive debt relief help if I am a recipient of the Supplemental Nutrition Assistance Program (SNAP)?

Participation in SNAP does not in any way bar you from seeking further debt relief aid from a private company. If you qualify for SNAP and you have other outstanding debt, you are likely a prime candidate for debt relief help because receiving SNAP benefits indicates financial need. Most debt relief agencies look for clients who have exhausted traditional methods of debt settlement and who are trying to better their financial lives. Utilizing SNAP funds demonstrates that you are working toward the kind of financial stability that good debt relief agencies hope to help provide. If anything, a SNAP recipient would need to be wary of the opposite problem from ineligibility—extreme vulnerability—in the search for debt relief assistance as there are a great number of predatory businesses in the field of debt relief who may try to take advantage of what might be perceived as financial desperation. Do not rush into a contract with any debt relief agency you have not fully researched and vetted.

What kinds of debt relief are available?

The most common and least harmful form of debt relief is called debt negotiation or debt settlement. This occurs when you choose a debt relief company to contact your creditors on your behalf and negotiate lower monthly payments, lower interest rates or even full debt forgiveness. Be advised that debt forgiveness is often viewed as taxable income by the Internal Revenue Service (IRS) and you may want to consult a consumer attorney to know your full rights before committing to any sort of debt relief plan that involves debt forgiveness.

Another equally common debt relief option is consumer credit counseling. This strategy does not generally involve any company directly contacting your creditors or actively attempting to reduce your debt, but instead focuses on educating you, the debtor, on proven ways to extricate yourself from debt. Consumer credit counseling teaches you how to manage your money more responsibly, how to avoid debt in the future and demonstrates for you the most prudent and expedient ways to pay off existing debt without overextending yourself. You can then make educated decisions about whether debt consolidation loans or balance transfers may be the best choices for your immediate financial future.

Debt consolidation loans and balance transfers are a bit more of a serious step in debt relief and can result in a negative impact on your credit score, but do not always do so. Debt consolidation loans place all of your existing debt into one large debt that typically has a much lower monthly payment than the combined totals of the separate smaller debts you were paying. Debt consolidation loans can drastically reduce the amount of money you must outlay toward becoming debt-free each month and give tight budgets breathing room, which in the long term should help your overall credit score improve. A balance transfer is moving a debt from a higher-interest account to a lower-interest account in the effort of making the monthly payments smaller and the interest rate lower on debts you may have been paying off for some time. Balance transfers are typically offered at interest rates that make your total payout on the original loan less than what it would have been and give you a more extended timeline in which to pay.

Is bankruptcy an acceptable form of debt relief?

In recent years hard economic times have pushed larger numbers of previously financially successful people to the extreme measure of declaring bankruptcy as a final form of debt relief. Bankruptcy should be considered the last stop in debt relief measures and by far the most severe. There are several types of bankruptcy but all have detrimental effects on your credit that can last for years. Some forms of bankruptcy wipe out all of your existing debt and others require you to pay back portions of what you owe in smaller increments each month. There are some debts that are not considered eligible for certain types of bankruptcy. Unlike other forms of debt relief, bankruptcy is a court procedure. A filing of any type of bankruptcy requires consultation with a bankruptcy attorney to establish if bankruptcy is the right choice for your debt relief goals and, if so, which type of bankruptcy would have the best result for your financial picture.

Debt relief is a highly personal issue that varies greatly from person to person based on individual financial need. Knowing your debts and being careful in the management of your finances can lead you to a debt relief solution that works for your long term financial goals.

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