Cobalt Advisors and Credit 9 have joined Saxton Associates and Hornet Partners in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Carina Advisors (also known as Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
People who are facing overwhelming levels of debt may be desperate for debt relief options. While debt relief programs can offer some breathing room to people who are in a difficult situation, they also have the potential to land debtors in even deeper debt.
There are various debt relief options available for people who are struggling with debt. These include (but are not limited to):
- Declaring bankruptcy to wipe out the debt completely.
- Getting the interest rate on loans lowered.
- Altering payment schedules to lower payments on loans.
- Convincing creditors to reduce the amount owed.
When should you seek out debt relief options?
Paying back debt can be a difficult task, even with debt relief options. However, individuals plagued with debt may have to seek out debt relief options if they believe they are unable to pay back unsecured debts such as credit cards, medical bills, and personal loans within five years. If you have compared credit card refinancing vs debt consolidation and it just won’t work, you may have to resort to debt relief if the remainder of their unpaid unsecured debt exceeds half their gross income.
Debtors who are confident that they can pay back their loans within five years could attempt to do so with a combination of budgeting, debt consolidation, and requests to creditors. It is generally the best way to consolidate debt.
How debt relief options could make things worse.
More often than not, debt relief options are offered by con men that are looking to exploit debtors who are in dire straits. These debtors may have difficulty completing the terms of the debt relief program offered to them, and could fall into even deeper debt if they fail.
Debtors that are looking to take the plunge and use a debt relief program should study the terms of the program. They should understand what they need to qualify for the program, what fees they will need to pay, as well as any tax implications that could occur from using the program.
With that in mind, let’s take a look at various debt relief options.
Debt management plans
Debtors can use debt management plans to make it easier to pay off their loans. These plans allow debtors to pay their unsecured loans at lower interest rates. People who use these plans can make monthly payments to a credit counseling agency that then distributes the payment among the debtor’s creditors.
Many credit card companies usually offer such options to clients who are having trouble managing their debts.
Debtors that use these debt relief options should know that their credit card accounts will be closed and they may not be able to use any credit cards until the debt management plan has been completed. Another downside of using this method is that the credit card account closure can affect the debtor’s credit score.
Declaring Chapter 7 bankruptcy as a debt relief option
People who are using debt management or debt settlement plans should avoid entering such programs if they feel they would be unable to keep up with payments.
Declaring bankruptcy would be the better debt relief option in this scenario. However, debtors should reserve bankruptcy as a last resort as it comes with many drawbacks.
Chapter 7 liquidation is the most popular form of bankruptcy. This method erases most debt from credit cards, unsecured personal loans, and medical bills. However, this method of debt relief does have its limitations and conditions. These include:
- Ruining the credit score of debtors that file for Chapter 7 bankruptcy.
- Being unable to file for Chapter 7 bankruptcy again for 8 years. This could be troublesome for debtors whose debts keep piling up.
- Making loan co-signers solely responsible for the debt when the debtor files for bankruptcy.
- Giving up property, vehicles, and certain valuables.
Declaring Chapter 13 bankruptcy
It should be noted that many people are not eligible to apply for Chapter 7 bankruptcy as a debt relief option. This could occur if the debtor’s income is above the median in their state. They may also be unable to file for Chapter 7 if they wish to keep their home from being foreclosed.
In either of those situations, the debtor will have to file for Chapter 13 bankruptcy. This form of bankruptcy includes a three or five year repayment plan that needs to be verified and approved by courts. The terms of the plan are determined by the debtor’s income and the scale of their debt.
Using this debt relief option, debtors can have their unsecured debt discharged as long as they follow the plan until completion.
Debt settlement is a risky debt relief option that should only be used in extreme circumstances. It is the preferred option for people that would like to file for bankruptcy, but are unable to qualify.
In this method, debt settlement companies negotiate with creditors to reduce the amount that the debtor owes. This method works only if the debtor stops all payments to creditors and makes monthly deposits into a savings accounts instead.
Once the account contains enough funds, the settlement company negotiates with creditors and asks them to accept an amount smaller than the debt.
However, debtors may have to deal with collection calls and even legal action during the window of time between stopping payments and the settlement company starting negotiations.
Do-it-yourself debt relief
Some debtors create their own debt relief options by contacting their creditors and explaining why they are behind on payments. They can also request concessions to help them catch up on their payments. A large percentage of credit card companies offer programs with low interest rates for people in debt.
Some debtors with good credit scores may be able to apply for a credit card with a 0% balance transfer offer. The credit scores of these debtors can remain in good standing as long as they make their payments regularly.
However, many debtors tend to have poor credit scores and may not be eligible for this debt relief method. Debtors should understand the conditions and limitations of each of the aforementioned debt relief options, otherwise they may end up in worse situations than before.