Do debt relief programs really work?

Many financial experts believe that the U.S has finally recovered from the debt crisis. Liz Ann Sonders, chief investment strategist at Charles Schwab Corporation, opines that the financial depression is technically over and it can be safely said the U.S economy has got back to its feet. However, the economy is still quite fragile and there are some serious weak spots. Statistics from the Labor Department reveals that the unemployment rate is as high as 9%. Moreover, the total amount of consumer debt in America, as per data from the Federal Reserve, is close to $2.5 trillion. That’s not a very reassuring figure either.

Under the circumstance, a lot of families in the U.S are still facing credit crunch and resorting to credit cards to survive. Therefore, it is not surprising that an average American carries almost $7800 in credit card debt. The debt-strapped people often resort to debt relief programs to find their way out of the debt maze. However, many people raise questions about the justification of enrolling in a debt relief program to get out of debt. Do the debt relief programs really work? Let’s discuss.

Debt relief programs: an overview

Debt relief programs are meant to alleviate your economic stress within a reasonable span of time. They can be broadly divided into debt consolidation, debt settlement and bankruptcy. Debt stricken people often hire debt relief companies or law firms to end their financial troubles.

Debt consolidation: Is it for you?

Debt consolidation involves taking a single loan to pay off several existing debts. It works best for people who have several credit card debts.

The advantage with debt consolidation is that you would have a single monthly payment to make which would make your job a lot easier. Also, consolidation loans have low monthly payments since they are mostly long term loans. If you choose secured consolidation loans then the interest rate will be low as well. However, defaulting on secured consolidation loan would mean loss of important assets.

Debt consolidation won’t work for people who are knee deep in debt. These people would not be eligible for the consolidation loan due to the poor state of their finances. Also keep in mind that you are borrowing your way out of debt with a loan if you opt for debt consolidation. So consolidating your finances will not make sense if you continue will poor spending habits.

Debt settlement: an effective way to eliminate huge debt

If the state of your finances is truly critical then debt settlement can be the answer to your troubles. If it is not possible for you to pay off your debts completely then you can approach the creditors with a settlement offer. You would need to ask the creditors to forgive a portion of the money you owe to them. In return, you can offer them a lump sum payment. The creditors usually accept settlement offers only from debtors who can become bankrupt any moment. When a debtor becomes bankrupt, the lender loses all his money.

Debt settlement can weigh on you since it damages your credit score quite badly. Moreover, the creditors do not appreciate settlement offers since they are losing a lot of money. In many cases, the consumers are abused for full payment and they become a victim of creditor harassment.

Bankruptcy: a costly solution

Bankruptcy is your last resort when nothing else works for you. Many people make the mistake of filing bankruptcy when it is possible to eliminate their debt with other debt relief programs.

With Chapter 7 bankruptcy, you can discharge your debts by liquidating your assets while Chapter 13 bankruptcy involves a restructured payment plan. You would get a chance to start fresh once more if you file bankruptcy.

It’s true that bankruptcy works for people drowning in debt but there are simply too many negative sides to it. Bankruptcy will damage your credit score, harm your future employment opportunities and bring about social stigma.

Is it worth hiring a debt relief company?

A debt settlement company or a law firm can make your job easier in more ways than one:

* Debt settlement companies have experienced negotiators who can negotiate with the creditors on your behalf. They can effectively lower the interest rates, settle debts, and waive late fees for you. This would reduce the stress on you and get you out of debt faster.

* A debt relief firm can play can instrumental role in ending creditor harassment. Usually, these companies have workable relations with different financial institutions and they succeed in stopping aggressive collection practices like abusive calls from the creditors.

* If you hire a law firm then you would get attorney representation in case you file bankruptcy.

However, you should remember that debt relief companies usually charge heavy fees. Also, there are a lot of scam debt settlement companies which cheat the indebted people. So proceed with caution.

Debt relief programs do work for a lot of people. Nonetheless, you would need to choose an appropriate debt relief program and a suitable company for the best results.