Beat Debt Down

Credit Debt Relief 101: What You Need to Know

Despite your best intentions, you’ve crossed the point of no return with your debt. What started as innocent and necessary quickly bloated as interest fees accumulated. If this sounds familiar to you, it’d be wise to think about additional ways of leaving this financial nightmare behind you. And yes, you really can do that. It might take some time and dedication, but someday you’ll regaining financial freedom again.

Let’s look at the three debt relief strategies for credit and what anyone considering them should definitely know.

Debt Management

What’s your debt-to-income ratio? Do you think with some hard discipline and planning that you could eventually get you in the clear? If so, a debt management program could be advantageous.

Debt management doesn’t hurt your credit and gives you the peace of mind that you’re working toward a financial solution. The important thing to debt management is staying disciplined, which is why top-rated companies like Cambridge Credit Counseling and In Charge Debt Solutions exist, among others. These services charge a small monthly fee and in exchange you get a personally tailored roadmap to financial freedom. Of course, you can also put in the extra time to craft your own debt management plan by researching best practices and taking advice from industry experts.

 Debt Consolidation

If you’re in more debt than lifestyle changes and a strict budget can solve, then debt consolidation may be the right way to go. Consolidation is ideal for those who are in debt to a lot of different creditors at relatively high interest rates as consolidating allows for the debts to be grouped together and often at much lower interest rates.

Sounds great, right?

It can be, but you should be aware it also usually comes with certain guidelines, such as putting a heavy limit on your personal spending, not allowing major purchases like a car or home, and even wage garnishment.

On one hand, these restrictions aren’t ridiculous: any company working to consolidate your debt on your behalf wants to govern your spending because the spending habits have been proven untrustworthy. On the other hand, they can be quite obtrusive to a person’s daily routine.

If you don’t have confidence in yourself alone to change your spending habits, then maybe the restrictions are more of an advantage. It should also be known that debt consolidation, while yielding a lower overall interest rate, will usually result in lengthening the payment period.

Debt Relief

When your debt has reached a level that can no longer be helped through a management or consolidation program, debt relief becomes a viable option. Be aware from the start that debt relief will likely damage your credit quite a bit. But when done through the right provider, it could also save you a considerable amount off your outstanding debt in exchange for a percentage of fees. Top debt relief companies, like Freedom Debt Relief, could offer as much as 50 percent off an initial debt balance before fees.

Anyone looking to take this route should first weigh the amount of debt they have. Negotiations can take years if a lot is owed because late interest fees accumulate. Lastly, be aware that any debt forgiveness you should encounter is taxed by the IRS as income. Debt forgiveness and paying some income tax is obviously better than paying the negotiated 20 percent of your insurmountable debt, but it’s something to keep in mind and not be caught off guard by.

When you’re in debt, the most important thing is having a plan to get out of it. While each of these debt strategies can be helpful, it really comes down to the specific level of debt you’re in, as well as your income, to determine the best path forward.