Various debt relief programs can help debtors consolidate loans, settle debt for less than what is owed, negotiate lower payments or interest rates, and eliminate debt through bankruptcy. Some creditors will work with people who are unable to pay their bills by negotiating a plan to ease the financial burden. They may forgive partial debt or reduce the amount owed.
Debt consolidation converts all monthly payments into a single bill each month to cover them. The debtor usually takes out a new loan to pay off all creditors and is left with a single monthly payment. These types of debt relief programs can include secured loans or unsecured loans.
A secured loan usually involves refinancing property, obtaining an additional loan on the property, or applying for a home equity loan. When the property is used as collateral, interest rates and payment amounts may be lower. These loans normally allow for a longer period of time to pay off. The debtor risks his or her property if the loan cannot be paid.
An unsecured loan usually charges a higher interest rate and gives a shorter time to pay. Monthly payments can also be higher than with debt relief programs using a secured loan. These are called personal loans, but in both cases the loan company usually analyzes the income and other living expenses before approving these loans.
Debt relief programs requesting settlement involve negotiations between the creditor and the debtor to reach a mutually satisfactory amount that will be paid. This may include total debt forgiveness or partial forgiveness of the total amount owed. Some debtors use this option when there is no hope of paying the total amount due and creditors are calling to claim payment.
Bankruptcy can be the last resort when debt grows so out of control that it leaves some other options. These debt relief programs usually involve a formal process through court, where some debts are forgiven. Bankruptcy can damage the debtor’s credit rating and ability to obtain credit for several years.
In the United States, a faltering economy led to the Mortgage Forgiveness Debt Relief Act of 2007. The law protects homeowners from tax liability when facing foreclosure or selling a home for less than they owe. Before the law, homeowners were taxed on the difference between what they owed on a mortgage and the amount the bank accepted when it was sold. Other public debt relief programs can help homeowners refinance housing at a lower interest rate.
- Debt relief for a secured loan, such as a mortgage, usually involves refinancing.
- Debt relief programs can help people eliminate credit cards.
- Debt relief attorneys can recommend bankruptcy as a last resort to eliminate debt.