If you’re in financial hot water, legitimate debt relief programs can help. Whether unemployment, illness or overspending caused your debt, you can overcome your problem. While debt can be scary or seem overwhelming, it doesn’t have to get any worse. Apart from realistic budgeting and financial self-help, here are five legitimate options for controlling or eliminating debt from your life.
- Credit Counseling Are you having a hard time developing a budget and sticking to it? Discipline may be your problem and credit counseling could be the answer. Credit counseling agencies offer budgeting help, debt management advice and educational materials. Most credit counseling organizations are nonprofit, but this doesn’t necessarily mean they are free. Most agencies charge a fee or encourage voluntary contributions that only add to your debt.
- Debt Management Plans If you have too much debt or just can’t repay it, a debt management plan (DMP) is a possible option. A credit counselor may recommend that you enroll in a debt management plan, but DMPs are not counseling and they aren’t for everyone. This plan requires you to deposit money each month with a credit counseling agency. The agency then uses your deposits to pay your unsecured debt, just as you would pay your creditors each month. Your creditors may agree to lower their interest rates and waive fees, as long as you make timely payments toward your DMP. Completion typically takes 48 months and you cannot use credit while you’re on the plan.
- Debt Settlement Programs Debt settlement programs differ greatly from debt management plans. Debt settlement is a risky option and its negative impact can stay on your credit report for years to come. Debt settlement programs claim to negotiate with your creditors to reduce the amount of money you owe them—sometimes up to 70 percent of your balance. However, these programs charge fees for their services and they offer no guarantees. Look long and hard for a legitimate debt settlement program if you choose to go this route. Be aware that the Internal Revenue Service (IRS) may consider your forgiven debt to be taxable income, which means you will owe money to the government.
- Debt Consolidation You may be able to lower your total debt by consolidating smaller debts. Debt consolidation typically requires a home equity line of credit or a second mortgage. If you choose this option, your home will be your collateral. This means you could lose your home if you fail to make a payment or if your payment is late. Consolidation loans can end up costing because of both interest and a special points system used with this type of loan. However, debt consolidation does have certain tax advantages. Do your research before committing to this debt relief program.
- Bankruptcy Bankruptcy is a legitimate, legal means of dealing with your debt. However, because of its lasting consequences, it’s usually a last resort. If you follow all the rules, bankruptcy will get you a discharge of your qualified debts—a court order that says you don’t have to repay those debts. But bankruptcy will cost you. Filing fees can run several hundred dollars and attorney fees can be $2,500 or more. And this legal process won’t discharge certain types of debt, like secured loans, student loans and child support arrears. Since credit reports show bankruptcy information for ten years, it may be hard to get credit, buy a home and find a job for years after your debts are discharged. However, this option will give you a fresh start, if your debt is serious and out of control.