By Manuel Tovar, June 22 – Hispanic Solutions Group
The debt relief it is not a one-size-fits-all solution. There are different ways to approach it, depending on how much you owe and what kind of interest rates you are paying.
Here’s a closer look at four of the most common debt relief options below.
- Debt consolidation
It means that you can choose to consolidate the debt if you have several different loans or lines of credit to pay. But what is the debt consolidation and how it works? In simple terms, debt consolidation means combining several debts into one. For example, you can use a personal loan to consolidate debt on multiple credit cards.
2. Balance transfers
This is another option for credit card debt relief. In this case, you would open a new account for credit card, ideally at a low or 0% APR, and then you would transfer your existing balances to this card. Debt consolidation means that you will only have to make one payment each month. However, you can save money on interest or not. It is also important to understand the pros and cons of debt consolidation.
3. Credit counseling
Credit counseling involves meeting with a credit counselor to discuss your budget, debt, and finances. A credit counselor can review your expenses and debts, and then help you create a personalized plan to manage both, count on our support and advice at Hispanic Solutions Group, if you have questions about where to start.
4. Debt management plans
A debt management plan, or DMP, works as follows:
- You choose which debts you can enroll in the program.
- You make a one-time payment to the debt management plan each month.
- That payment is distributed among your creditors, in accordance with the terms of the plan.
Debt management plans are similar to debt consolidation in that you only have to make one payment. But this type of debt relief program does not require you to obtain a loan or open a balance transfer credit card. And depending on the program, you may be able to get your interest rate lowered or certain fees waived. Under the terms of a debt management plan, while you may receive more favorable interest rates or fee relief, you still repay the entire principal amount owed.
Debt settlement is considered a last resort option. It allows you to pay off your debts for less than what you owe. If your creditor accepts a debt settlement, any remaining balance is written off. This is effectively a type of debt forgiveness, as you do not have to repay anything other than the agreed settlement amount. Debt settlement is something you can do yourself if you have cash to pay your creditors and are comfortable negotiating with them one-on-one. There are also debt relief companies that will negotiate for you. However, this generally involves paying a fee to the company that is helping you obtain loan or credit card relief.
Also, keep in mind that it generally must be past due before a creditor will consider paying off a debt. So, compared to other debt relief options, debt settlement can be more detrimental to your credit score. For example, if you work with a debt settlement company, they will ask you to make payments into a separate account they have created, instead of paying your individual creditors. This will cause you to be behind with your creditors for a period of time, which will negatively affect your credit. There may also be income tax implications for debt settlement, whether done through a debt settlement company or on your own, because the amount of debt forgiven will likely be considered taxable income.
We invite you to follow our social networks: LinkendIn, Facebook, Twitter and Instagram to find more information related to finances. Also on our YouTube channel The Credit Channel to learn how to improve your credit. If you need help in repairing your credit, disputing debts that do not belong to you, or other services, call us at (612) 216-1599.