Debt relief can be translated as a way to settle your debts and make due payments by altering the terms and conditions of the original debts. While some might argue that there is no such a thing as debt relief, generally it refers to the efforts made by the debtor with a neutral third party working together with the creditor to come up with a win-win solution for all. The creditor will get their due payments, the debtor will be free of debts and the third party gets to assist the creditor and debtor while collecting a substantial amount of professional fee.

There are various forms of debt relief to suit different types of debt situations. One needs to fully understand the concept of each different form of relief before committing oneself to a program. It is always wise to seek help and advice from experts to see which relief type is suitable for you.

The most conventional form of debt relief help is credit counseling. Spearheaded by the Consumer Credit Counseling Service (CCCS), the counselors act as the middle person between you and your creditors. Some CCCS services are for profit while some are non-profit. Credit counseling is suitable for debtors who can afford higher monthly obligations. Similar to the concept of debt reduction, the CCCS attempts to get the creditors to agree to reduce the debt amount and will collect the monthly payment from the debtor. They will then distribute the amount to respective creditors according to their portion. A small percentage is retained by the CCCS as part of their professional fees and additional charges.

Debt consolidation is the most popular relief method of choice for many people in the US. The idea of obtaining a new loan to help pay for existing debts is appealing to a lot of people. People with credit card debts often prefer this method as it is an easy way to get the money to pay all their creditors and the lower interest rate gives the impression that they will be paying less than what they owe. But they tend to forget that by consolidating a debt, they are also extending the pay back period. So logically, they are actually paying more than what they originally owe.

Filing for bankruptcy is the least favorite debt relief method. It is always considered as the last resort if all else fails. Creditors also try to avoid letting their debtors file for bankruptcy because they will not be getting a penny of their money that way. When filing for bankruptcy, the debtor actually allows the court to liquidize his assets in order to be relieved from any liability. A bankrupt person will basically have to rebuild his life back as it will be very difficult for him from that point on to obtain credit or to purchase assets. He is required by law to disclose his bankruptcy every time he applies for a loan or when buying a house. Creditors are least likely to grant a bankrupt person a loan because he will be considered a high-risk debtor.

Another form of debt relief is the debt reduction program. Sometimes known as debt negotiation or debt reduction, the concept is to negotiate with the creditors to allow a significant sum of the debt to be reduced by up to 60%. The debtor will need to convince the creditors that unless a debt reduction is granted he will be less likely to be able to afford to pay for his debts. Creditors would prefer to lose some money as opposed to losing it all. The reduction rate is at the discretion of the creditor. Bear in mind that the reduction is only on the principal amount and not on the interest. Creditors are also likely to insist that the debtor pay the reduced amount in one lump sum.

These four types of debt relief may very well lead debtors to debt freedom. By taking the necessary and sometimes unpleasant steps, debtors can slowly but surely get rid of their debts by paying for it in ways that they can afford to.

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Category: Finances
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