Are you worried or overwhelmed by the huge debts you have? You are not alone. In America, the average student loan is around $30,000, and the average household debt is about $5,700. Debt relief involves any structured strategy to pay your outstanding debt. Debt reduction/relief will benefit you from huge interests, negative credit scores, as well as giving you peace of mind.

But, when the debts overwhelm you, where should you start? There are several options you may consider to relieve your debts. You may select different options yourself or with expert help including debt settlement, bankruptcy, creating and sticking to your budget, debt management, debt consolidation loans, and making minimum monthly payments.

Before clearing the debt, you want to evaluate your financial capability. So begin by gathering your financial details in one place. Although it may seem unpleasant, it will help you find out where your money is going, see your recent earnings, and know your credit profile.

After evaluating your financial ability, note your financial situation is different, so the option best for your friend may not suit your case. Remember, each option has its advantages and cons. Again, you may choose more than one option before handling your issue. First, you will be required to determine your priorities before choosing the best option. Then, you may seek assistance from your bankruptcy attorney to guide you where necessary.

Understanding the Best Debt Relief Options

As mentioned above, there are several debt relief options you may choose for your financial crisis. The options are developed and combined by lending institutions, the federal government, credit card institutions, individual debtors, and non-profit businesses. Any of these bodies may free you from debts and affect your credit card history or report. Before you approach them, carefully examine and analyze their effects on your future financial incomes.

Before you choose the varied options, you need to consult experts. A few options will require you to work with a debt relief professional. Alternatively, the other options will require you to seek help from an adviser. In America, we have countless non-profit organizations endorsed by the government. They have skilled financial officers and counselors whom you may talk to before going for any option. They will discuss the root source of your debt issues, which might be bad spending and poor budgets.

All the options will start with a financial budget plan. First, you and your financial expert will plan the budget. The budget will involve taking your total debt, income, necessities, and your monthly financial incomes. The budget will help in determining the amount of money you can afford to pay the outstanding debts. Below are the potential debt relief options you want to consider when seeking your best debt relief option.

Be aware that the debt relief industry has several scammers eager to run away with the little money you have. Several people who enter the debt program with little knowledge end up failing to complete them. It means if you’re not aware of the scammers, you may end up paying even more than the interest. Ensure you understand and verify the following things before you agree:

  • Tax implications.
  • The fee you will pay.
  • The option of debt relief you qualify for.
  • The creditors being paid and the amount.

Debt Settlement

Debt settlement has become a popular debt relief option. It involves the assistance of a debt relief organization or agency. Usually, the experts will negotiate on your behalf and agree to lower the outstanding debt you will have to pay. The amount reduced will involve a certain percentage of the initial balance. After paying off as agreed, the creditor will dismiss the debt.

The process begins with the negotiator analyzing your financial ability. After the parties know your financial capability, they will ask you to deposit the payments in a particular financial institution. So, you will seize paying the creditor through this method. Finally, if the creditor realizes you are not making the total payments and takes you to court, your negotiator will come in with a debt settlement proposal.

As you are in the debt settlement agreement, note your credit report will have a negative reading. However, the reading will pick up after settling the debt. To succeed in debt settlement, you want to hire a good negotiator as your champion. Although you may do this by yourself, a negotiator is experienced and has skills in debt settlement. The expertise has more likelihood to achieve better results than yourself. Again, if you work with a company experienced in the debt settlement industry, you may greatly benefit from the working relationship with collection agencies and creditors.

Remember, a legitimate debt settlement company will not work with debtors who pretend they cannot make payments for the outstanding debt balances. So, as a debtor, you must be unable to pay the outstanding debt balance. If not so, you will find it challenging to secure the services of a respected debt relief company to assist you. Therefore, always consider working with a financial expert.

Pros

  • Expertise pays off. Although you may try the process yourself, a debt settlement company is an expert in negotiating with your creditor.
  • Most debtors end up paying approximately 60 to 80% of the initial debt, but they may even pay as low as 50%.
  • Debt settlement will ensure creditors don’t come for your property.

Cons

  • Negative Credit score. Debt settlement will damage your credit score. The credit card company or the lender will report your debt as settlement accepted, settled for less for seven years. Even if you are working with the debt relief company, the collector may report any late payments to credit bureaus. So, this could be the case until the account is fully settled.
  • Extra debt accumulation. As the debtor, you are not making the payments to your creditor; the interest increases. If the debt settlement plan falls, you may end up paying more than the original debt.
  • Unfortunately, recently there have been many scams related to debt settlements. It might be challenging to find a reputable company.

Paying Your Minimum Monthly Debt Balance

Paying your monthly debt balance is another option you may use for debt relief. The option is less complicated and obvious. The debtors pay the debt every month. The plan focuses on the debtor paying at least the minimum amount required. However, to succeed with this payment plan, you have to pay more than the amount necessary. Otherwise, you may take extended time before you finish paying the debt.

The good news with this debt relief option is that you will never be burdened with high-interest rates or late payment warnings. Also, if you keep the payments on time, you will not have a negative credit score. But, with the option, you will take a long time before finishing the debt payments.

You may increase the monthly payments if you want to clear the debt earlier. So, to improve your payment capability, evaluate your financial budget and see whether you have enough money to increase the monthly payments. If you find that your budget plan is enough, you may consider paying off the interest with a higher amount than the minimum requirement. But, if you have insufficient money to cover that, examine your expenses and look where you may save more money. If you have this option, ensure you work closely with your bankruptcy attorney to ensure smooth progress.

Create a Payment Budget and Stick to It

Handling debt is essential, and you want to stick to the payment track. To ensure you stick to your payment plan, most financial experts recommend you keep a small emergency fund to use in case of life “hiccups.” For example, $2,000 may be sufficient for most emergencies. However, if you think it’s a large amount, you may start by keeping aside $1,000 in your savings account. Then, with the active saving account, direct your extra funds there.

Now that you have your financial budget, you may then develop a payment plan. First, note your payment due dates. You may mark the dates on your calendar to ensure you don’t skip the payments. Also, you may consider enrolling in an automatic bill payment plan to ensure all your bills are paid through your bank on time. You may also register for online payments where you will pay your active creditors directly. Usually, the process will generate automated emails showing the minimum payments, the total balances, and the due dates. Creating your budget is a simple process. You will only need to:

  • Place your average monthly earnings on top.
  • List your monthly spending. The expenses include recurring bills which you pay every month like insurance, utilities, services, mortgage/rent payments.
  • Then add variable expenses. They involve expenses that vary from month to month, like entertainment, restaurants, gas, and groceries.
  • Add your outstanding debt payments. Ensure you include the minimum payments for each debt
  • Afterward, include your savings. You want to account for events like travel, home maintenance, anniversaries, birthdays, and Christmas.

Add up all of the above and then subtract from your monthly earnings. You will know the amount left to pay your debt.

Debt Management

Debt management is one of the valid methods you may use to relieve yourself of debts. It’s also known as debt counseling. The plan works similarly to debt settlement, although the debt management company handles the funds. The debt management company will pay your creditors using the payments you find in your account. Also, they will help you by lowering the interest, your payments, and the outstanding debt balance by discussing the issue with your creditors. But, the plan will have a negative score on your credit report. The difference between the plan from debt settlement is they provide debt counseling services.

Pros

  • It's organized. You make the payments in a monthly plan, giving yourself much time to manage your finances effectively.
  • Good for your credit score. If you keep making the payments, it will improve your credit score with time.

Cons

  • The repayment plan will often take around five years.
  • Many costs are involved. The plan involves enrollment and maintenance fees.

Debt Consolidation Loans

Debt consolidation is another alternative for debt relief. It involves combining all your debts so you pay as one loan. The main aim of the plan is to discharge the high interests and keep only one monthly payment. The most familiar type of debt consolidation is a home equity loan.

The debt is easily managed since you only focus on one payment. You will mostly skip this option if you have a lower monthly payment. Also, you will consider the impact on credit score. It will have a negative score. But, it will pick up after you settle and make the repayment on time. Ensure you adhere to the monthly repayment plan. Otherwise, you will risk losing your home. So, stick to your budget and the repayment conditions and terms of the new loan.

Benefits

  • Work with expertise. You will work closely with certified debt consolidation professionals who will find the lowest monthly payments available for you.
  • Numerous avenues are available. When you choose a credit union or bank to obtain the consolidation loan, you will end up paying low interest.
  • Ease your financial fatigue. Being in debt makes you feel stressed and emotionally burdened. So, when you see your monthly payments and interests go down, you will experience a wave of relief.

Cons

  • Collateral damage. Note, your home, car, or any other asset may be put as collateral for your secured loans.

Declaring Bankruptcy

Bankruptcy is among the least desired debt relief options by creditors and experts. By declaring bankruptcy, you are completely unable to pay your debt. It involves a bankruptcy court, and you risk losing your property. Also, your property isn’t an assurance you will pay the total debt to your creditor. The option will completely affect your credit card history and score. Even in events when you require financial aid, the chances of receiving one are minimal.

  1. Chapter 7 Bankruptcy

Under this type of bankruptcy, the bankruptcy court will allow you to receive relief for your unsecured debts. But, the court must conduct a means test. Next, you will undergo credit counseling. The means test will help determine whether you are the right candidate for declaring bankruptcy under chapter 7 bankruptcy. Based on your residential state, the bankruptcy court may ask you to give out your assets to cater for part of your debts. The assets may include your car or home, or any other valuable property. After that, the court will discharge most of your unsecured debts. But remember, the court will not wipe some debts like tax debts, student loans, and child support.

  1. Chapter 13 Bankruptcy

The bankruptcy will allow you to repay your outstanding debts for a period of up to 5 years. The bankruptcy court will then discharge your debts. If you don't want to lose your property, then consider this kind of bankruptcy. Before declaring bankruptcy, the bankruptcy court will recommend you undergo counseling. But you will be required to pay child support, tax debts, wages owed to employees, your regular car and house payments, and any outstanding payments for your car and house.

Benefits of Filing Bankruptcy

  • Avoid harassment from your creditors. After filing for bankruptcy, the court will give you an “automatic stay.” So, it means your creditors will be prohibited from making collection threats through letters or over the phone.
  • Start afresh. Bankruptcy is an option to wipe out all outstanding debts and give you another fresh start. So, with a fresh start, you will have a chance to restore your finances and have peace of mind after a period of worries about your debts.
  • Non-disruption of life. Don’t lose the essential assets you own. Property like your cars, retirement savings, home, and other personal items will be exempted by bankruptcy.

Disadvantages of Declaring Bankruptcy

  • Several debts may not be discharged. Debts like alimony, student loans, child support, and government taxes won’t be exempted by bankruptcy. You will still have the outstanding debts and be responsible for repaying them.
  • It's an expensive process. Before you declare bankruptcy, you want first to find a competent bankruptcy attorney. Note, the attorneys don’t provide free services, so that you will pay them. Again, you will encounter additional fees like court filing fees, counseling fees, photocopying charges, paralegal fees, and bankruptcy trustee fees. So, expect to pay all these charges once you decide to go bankrupt.

Find a Bankruptcy Attorney Near Me

Debt relief options should help you eliminate your outstanding debt. Obtaining a larger loan to repay a small one doesn’t eliminate your debts. It repackages your debt. Eliminating certain debts and leaving others unpaid doesn’t solve your financial crisis. If you are seeking to eliminate your outstanding debts today in San Diego, CA, at San Diego Bankruptcy Attorney, we are here to help you find the best debt relief option for your situation. Our bankruptcy attorneys are more than willing to work you. Contact us at 619-488-6168 for a free consultation. We will help you have a fresh start and budget your income. It just starts with a phone call.