What is Debt Relief?
Debt Relieft Defined:
Debt relief is when part of a debt is forgiven; unsecured debts such as credit cards, personal loans qualify for this, while student loans
, car loans
and mortgages do not. It is not like debt consolidation
where all dues are merged and the EMI is reduced. Secured debt, with collateral is advisable than unsecured debt like credit card dues as it carries more risk.
A debt management plan
(DMP) helps in consolidating
dues owed to all creditors and a reduced EMI is payable to relieve burden on the debtor, and also maintains one’s credit rating
. For determining the ideal DMP, each case has to be evaluated individually and treated as unique. The debtor, the amount due and capacity for repayment all need to be considered before deciding on a DMP. One can approach CareOne Credit for professional advice on Debt Relief. Some credit card companies
are offering Consumer Credit Counseling to collect their dues; this helps clear debts much faster as even the principal is partly forgiven.
A consolidated debt loan can only buy more time, and not provide any relief. Debt Relief agencies can help with most unsecured debts.
The credit rating of a person going for a DMP will depend on the credit rating before entering DMP and also on the DMP – bankruptcy, debt reduction
or credit counseling. No service fee is demanded upfront, but a fee is deducted from the EMI.
The debtor can choose the creditors to be included in the DMP. The goal is to clear all debts at the earliest and so pre-payment attracts no penalty. Debt reduction is not the same as bankruptcy, but the last resort before declaring bankruptcy. A FDIC approved settlement account is set up in the debtor’s name, given him / her complete control over that account so they can monitor the same. Debt Consultants can offer advice on your best options for clearing debts. Clear the debts which carry higher interest rates on a priority basis or consolidate
all dues, with lower EMIs.
If a debtor cannot reach an agreement with his creditors, a CCC can step in and facilitate, by talking directly to the creditors. It is much better than paying a Debt Relief agency; one agency that is the exception to the rule can be visited a debt relief site.
But it is better to deal with the creditors directly than pay an agency for the same. Many Americans and Canadians are now facing debt repayment
issues given the current economic climate. The ideal way to deal with this is to consider all incomes and debts, then prepare a budget and STICK to it.
One should remember that going to a CCC will impact their credit score, and that a debt forgiven, if substantial, will attract tax as it is treated as income. Opting for a DMP does affect your credit rating adversely, up to 7 years, after which it can be removed from one’s financial history. Also one can work out all dues and start paying them off one by one, while paying minimum dues on the rest. With diligent and prudent planning and by sticking to it, everyone can get Debt Relief.