Is debt relief a good idea?

The past few years have been tough financially. After covid, Rising inflation And High interest rates, many people are struggling to afford large purchases, pay for emergencies and generally make ends meet. As a result, many are in debt.

According to a TransUnion ReportTotal credit card balances increased from $785 billion at the end of 2021 to $930 billion at the end of 2022. total personal loan The balance increased from $167 billion to $222 billion during the same period. With the average borrower having $5,805 in credit card debt and $11,116 in personal debt, it’s no surprise that delinquency is also on the rise.

If you’re struggling to pay off your debt, debt relief is one way to avoid becoming one of these delinquents. In this article, we’ll discuss how it works and whether it’s right for you.

Start exploring your debt relief options by getting a free savings estimate here.

Is debt relief a good idea?

Debt relief services help you assess your situation, weigh your options, and create a plan that works for you. Here are three reasons why it might be a good idea for you.

This can help you pay off your debt faster

If you’re struggling to make more than the minimum payment on your loan, it could take years (if not decades) to pay it off. Working with a debt relief service can help you get your balances and payments down to a more manageable level, allowing you to pay off in a fraction of the time you otherwise would (and for a fraction of the cost).

This can help you avoid bankruptcy

Bankruptcy should be a last resort. A Chapter 7 bankruptcy will stay on your credit report for up to 10 years and a Chapter 13 for up to seven. This significantly hurts you Credit score And can raise red flags for potential employers and landlords, affecting your prospects for years.

Although debt relief can lower your credit score, the injury is usually minor. For example, bankruptcy can drop your score by 200 points or more, while debt settlement drops your score by close to 100 points.

It can help you get back on track financially

If money is already tight, even making the minimum payment can be difficult. But the less you pay, the more interest you’ll incur, locking you into a vicious cycle where your balance continues to grow despite your best efforts to pay it off.

If you’ve been doing everything you can to pay off your balance but can’t make any progress, debt relief can help you stop treading water and rebuild your finances. Find out what debt relief options are available to you here.

Debt relief options

Debt relief comes in various forms that can be beneficial. Here are four to know:

• Debt Consolidation: Taking out a loan to pay off high-interest debt at a low interest rate
• Debt Management: Working out an agreement with your creditors to pay off your debt, often involves reducing your balance and/or interest rate.
• Debt Settlement: Negotiating with your creditors to reduce your balance in exchange for agreeing to pay a certain amount within a certain period of time
• Loan Forgiveness: Negotiating with your creditors to cancel your balance or reduce it in exchange for agreeing to pay a lump sum

With multiple options to choose from, debt relief can free you from the financial and emotional stress of high debt burdens. Discover your debt relief options here.

Other considerations

Although debt relief can help you get out of crushing debt, there are some potential pitfalls to be aware of.

• Credit Score Reduction: Debt relief services require you to stop paying your creditors while they negotiate a plan with them. This can hurt your credit score (though not as much as bankruptcy). Plus, debt settlements and forgiveness will stay on your credit report for up to seven years.
• Rates and Fees: Debt consolidation loans carry interest rates, and debt settlement services typically charge a percentage of your total outstanding debt. Read all terms and conditions and compare services to ensure these costs do not exceed any relief you receive.
• scam: Some bad actors take advantage of borrowers desperate to fix their situation. Avoid them by looking out for red flags like requiring upfront payment and guaranteeing specific (often unreliable) results. Be sure to do your research and choose a reputable debt relief company.

Bottom line

Debt can be overwhelming. This affects your financial situation now and in the future and can cause significant stress. If your debt burden has become unmanageable, debt relief is worth considering. Just be sure to explore your options, any interest and costs you may incur. And once your debt is gone, create a budget and savings plan To make sure you never find yourself in a similar situation again.