Debt Relief

What is Debt Relief and When Should I Seek It?

Debt can seem like an insurmountable burden, impossible to escape once a consumer has gotten too far in. Different options are available for dealing with credit card debt, student loan debt, and other consumer debts.  

Many times, consumers find themselves overwhelmed with several different types of debt in differing amounts.

The type of debt relief needed depends on the type of debt involved and how much is owed. Debt relief can include the following methods:  

  • Debt consolidation 
  • Credit counseling  
  • Interest rate reduction 
  • Reducing the principal amount owed 
  • Changes to the credit card or loan’s repayment terms 
  • Loan refinancing  
  • Bankruptcy

Debt consolidation is the best method for a consumer looking to combine several different loans, credit cards, or lines of credit into one debt. Many times, debt consolidation involves the consumer taking out a personal loan to pay off these multiple debts. Balance transfers are also another form of debt consolidation. Balance transfer cards involve transferring multiple credit card balances to one card with a low or zero promotional interest rate. Consolidating debt means the consumer is able to make one larger payment instead of multiple minimal ones where he or she is likely only paying down interest earned from month-to-month. 

Credit counseling is another form a of debt relief, involving the consumer meeting with the credit counselor to review his or her budget, debts, and financial picture. A credit counselor can discuss better ways for the consumer to handle his or her spending and can create a personalized budget and plan to handle the consumer’s finances. Before choosing a credit counselor, it is important to verify the agency’s accreditation status through the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Many nonprofit agencies are available for consumers needing free services.  

Other debt relief methods involve working directly with the creditor to either reduce the monthly interest assessed on the amount owed or to negotiate down the amount of debt outstanding. Many creditors would rather work with the consumer instead of pursuing collection of the debt in court. If a consumer is not interested in contacting the creditor himself or herself, credit counselors or other debt relief companies can be hired to negotiate on their behalf.   

Another option is to pursue debt settlement. Many times, debt settlement works as a form of debt forgiveness since it involves negotiating down the total amount paid. Again, debt settlement can be something done by the individual consumer or can be done with the assistance of a debt relief company.  

One factor to keep in mind is that a debt settlement company typical requires the consumer to be past due before moving forward with debt settlement. Additionally, many companies will ask the consumer to pay the debt settlement company first, allowing accounts to go into default, which will negatively affect the consumer’s credit. Additionally, many different scammers exist, taking advantage of consumers who are desperate to escape their debt and are not aware of the regulations regarding proper debt relief. It is important to always research a company before entering any contract with a debt relief company.  

When considering debt settlement versus bankruptcy, one of the positives of filing for bankruptcy is that you will have protection from your creditors. They can no longer call and harass you for payments.  It also allows you to resolve your financial problems rather quickly and painlesslessly. Debt that is discharged in a bankruptcy case, cannot be taxed.  Negative impacts of debt settlement include having to pay a sizeable amount to the debt settlement company, and having to pay taxes on the amount forgiven.

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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.   

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