Best ways to get debt relief

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Best ways to get debt relief

When it comes to getting debt-free, the right strategy can make all the difference. There are a lot of potential tools and resources that could help you take control of your finances and find debt relief.

Freedom Debt Relief takes a look at the best ways to get debt relief and start your journey to a debt-free life.

Key Takeaways:

• Cutting expenses, improving your income, and refinancing your debt can make it easier to manage debt payments.
• Credit counselors can help you with financial education and making a plan.
• Debt settlement and bankruptcy may be options to get rid of debt for less than you owe.

Start With the Big Picture

Before anything else, you need to know exactly where you stand. You need a list of your income, assets, debts, and expenses. Include minimum monthly payments and interest rates for each debt.

This process can be as simple or as involved as you want it to be, from a few lists on a piece of paper to a full spreadsheet. You can even automate it with a good budgeting app that automatically pulls up your accounts and transactions.

The goal is to know exactly how much you owe, what it’s costing you, and how much you can afford to repay each month.

Decrease Your Expenses

Once you have everything in front of you, it’s easier to look for areas where you can cut back your expenses. Perhaps you’ll find a streaming service you can cancel, or maybe you’ll notice you’ve been eating out more than you realized.

If nothing obvious jumps out, get proactive:

• Shop for cheaper phone, internet, and insurance plans.
• Look for ways to lower your energy bills at home. Bumping the thermostat up or down or adding window seals could make a noticeable difference.
• Consider setting up an office carpool or requesting remote work to reduce commuting costs.
• Use store and savings apps to find digital coupons and rebates on groceries and household goods.

Even small cuts can add up and make it easier to manage your debt payments.

Increase Your Income

An income boost can have huge positive impacts on your financial health, including your ability to manage your debts. This could be a short-term boost, such as taking on a seasonal job, or a long-term increase from a pay raise or new job.

You don’t need to double your income overnight. Any extra income that goes toward your debts can help you stabilize your finances and find relief.

Refinance and Consolidate Your Debt

Refinancing is when you use a new loan to pay off existing debt. If you use the new debt to pay multiple existing debts, you’re also consolidating your debt.

Debt refinancing can be a powerful tool for debt relief if you qualify for a loan or credit card with a much lower interest rate than you’re currently paying. For example, if you can refinance credit card debt with an average 25% APR using a loan that charges only 10% APR, you could make headway against the debt a lot faster. That’s because, at a lower interest rate, more of your payment will go towards lowering your debt instead of covering interest charges.

Your ability to find a lower APR largely depends on your credit standing. People with higher credit scores tend to receive lower interest rates.

Contact Your Creditors

You can contact your creditors directly for debt relief as soon as you realize you’re going to fall behind. Your potential debt relief options depend on your personal situation and your relationship with your creditor, but it could include:

• A temporary pause in payments
• A lower interest rate
• Lower minimum payments
• Fee waivers

Creditors are more likely to offer these options to people in financial hardship, such as folks who have lost a job or gone through a recent divorce.

Consider Debt Settlement

Debt settlement involves negotiating with your creditors to get rid of your debt for less than you owe. If you experience financial hardship, debt settlement might be an option for unsecured debts like credit card balances, personal loans, and medical debt.

You can attempt debt settlement yourself by negotiating with your creditors on your own. Alternatively, you can contact a professional debt settlement company to work on your behalf. Debt settlement is for someone who truly can’t afford to fully repay their debts.

Get Help From a Credit Counselor

Maybe all you need is guidance from an experienced professional. In that case, contacting a nonprofit credit counseling agency could be a good way to find debt relief.

Credit counselors can help you organize your finances, including setting up a budget and a roadmap for paying off your debts. You can learn the skills you need to take back control of your finances and boost your financial literacy.

Get On a Debt Management Plan (DMP)

Nonprofit credit counseling agencies offer something called a debt management plan (DMP). A DMP is a structured plan to fully repay your unsecured debts within three to five years. You’ll be expected to stop using credit while you’re on the plan, and they might require you to close your credit card accounts. The credit counselor might negotiate lower interest rates and fees to help you make more headway against the debt.

If you’ve been making minimum payments on your credit cards, the DMP payment might be quite high in comparison. You make a single monthly payment to the credit counseling agency, which pays your creditors in turn.

Explore Chapter 7 Bankruptcy

If you’re dealing with a lot of unsecured debt, such as credit card debt, then bankruptcy may be an option for debt relief. Bankruptcy gives you legal protection from your creditors. Chapter 7 bankruptcy lets you walk away from most or all of your unsecured debt if you qualify.

Chapter 7 is best for folks with low incomes. If you can afford a payment, you aren’t likely to qualify. You can file for bankruptcy protection on your own. Statistically, though, individual cases are far more likely to be successful with the help of a bankruptcy attorney.

Change Your Money Habits

No matter which debt relief options you use, it’s important to address the reason you got into debt so it doesn’t happen again. One of the best ways to master your finances is to improve your financial education. Take advantage of online tools and resources, or seek out a professional credit counselor or financial advisor for one-on-one help.

This story was produced by Freedom Debt Relief and reviewed and distributed by Stacker.