When one is overburdened with credit card debt, there are a number of debt relief programs available. These can help reduce or eliminate the burden. Before deciding to enter a program, one has to understand a few things. First of all, the debt did not accumulate overnight, so the problem is not going to be solved quickly. The accumulation of debt is, to some extent, due to poor spending habits that will have to be controlled if the debt is going to be cleared. Also, getting credit card relief is also going to cost money.
Debt consolidation companies can refinance the unsecured debts owed by an individual at a lower interest rate to bring down the consumer’s monthly payments. In other words, it is a loan to cover the original loans but at a lower interest rate. Consolidating debt means that one new loan will replace two or more existing loans. The benefit being that instead of making two or more monthly payments, the consumer will only be making one payment that will be lower than the original payments combined.
If the consumer is lucky enough to have a good credit score or is in a position to pledge something as collateral, then a bank, credit union or some other financial institution can carry out the debt consolidation for free. Well, not exactly, because the consumer will still have to pay appraisal fees, title fees, and some kind of maintenance fee.
Generally, consumers with debt problems do not have good credit scores or assets to pledge. AOL even shares that debt can even affect you emotionally and romantically. In that situation, a cheap debt consolidation plan will most probably not be possible. For consumers not qualifying for the low-cost credit relief, there are different fee plans available. A vast majority of these plans require advance payments. In some cases, these may be paid by the new lender as a ‘finder’s fee”. One has to be very careful as some unethical lenders may lower the monthly payments by extending the loan period instead of lowering the interest significantly. This means that while the monthly payments will be lower, they will end up paying more in interest over the longer duration.
Credit Counseling Debt Management Plan Costs
Debt management programs are another option for getting credit relief. They are offered by non-profit credit counseling agencies. Such debt relief programs have the potential of cutting debt payments by half over the repayment period. The counseling service reviews a consumer’s financial situation. Then, they establish how much they are able to pay on a monthly basis. Then they go to the creditors and negotiate a reduced interest rate and monthly payments. This should suit what the consumer can pay. The fees paid to the counseling service are nominal (usually between $25 and $50 a month). However, the actual cost of the program is usually is quite high. This is because the debt repayment is stretched over the longest period of time. The benefit of the program is that the credit score does not suffer, which is a major bonus.
Bankruptcy Debt Relief Costs
Before you decide on going to bankruptcy court to file your petition, there are plenty of costs you have to know about. Not only is the bankruptcy lawyer not cheap, the state filing costs are pretty steep too. You can expect to pay about $2,500 to $2,800 to file for personal bankruptcy. If you are struggling to keep up with the bills how are you going to manage to come up with an extra $2,500? US News even came up with a pretty conservative amount of $1500 in filing for Bankruptcy but even that is a big amount upfront.
Not to mention the indirect costs of bankruptcy – higher APR loans for at least 7 to 10 years, job denials, higher insurance costs, etc. You really need to take some time to decide if the costs of bankruptcy are worth it in the long run.
It does make sense in some situations. Like if you are able to pass the means test and qualify for Chapter 7 bankruptcy liquidation.
A No Upfront Cost Option For Debt Relief
Another way to get credit card debt relief is through negotiation and settlement. You or a debt relief firm will negotiate with your creditors to reduce your outstanding balance by up to 50% on average. This is an excellent option especially for people with low or poor credit scores.
Possibly the best reason for going down this road is there are no upfront costs. You only pay after your debt relief firm has successfully negotiated with your creditors and had your balances reduced. Your costs at that point will be around 20 to 25% of the savings on your credit card debt.
Consolidating debt takes hard work and some lifestyle changes that include better management of money. You can achieve this with the help of debt relief programs.