Managing debt can be a complex and stressful process. Fortunately, there are various debt relief programs available in the U.S. designed to help you reduce your debt burden and regain financial stability.
According to experts, the program you choose should be more helpful to your specific situation. Here are different debt relief programs you should know and explore according to your financial situation.
Debt Consolidation
Debt consolidation involves combining multiple debts into a single loan with a lower interest rate. This simplifies repayment and can reduce overall interest costs. Common methods of debt consolidation include personal loans and balance transfer credit cards.
What is Bruce McClary’s(Senior Vice President of Communications for the National Foundation for Credit Counseling (NFCC).) expert opinion on debt consolidation?
According to Bruce McClary, you should consider debt consolidation if you want to streamline your debt payments and reduce interest expenses. Of course provided you have a good credit score and a reliable source of income. This approach can make managing your debt more straightforward and financially beneficial in the long run.
Based on Bruce McClary’s advice, you should consider this debt relief program if you;
- have multiple high-interest debts (e.g., credit cards).
- can qualify for a lower interest rate than your current debts.
- have a steady income to manage regular payments on the new loan.
Debt Settlement
Debt settlement companies negotiate with creditors to reduce the total amount of your debt owed. Typically, you would make monthly payments to a dedicated account, and once sufficient funds are accumulated, the company makes a lump-sum offer to your creditors.
Andrew Housser’s(co-founder and CEO of Freedom Debt Relief) opinion on debt settlement
According to Housser, debt settlement can provide substantial relief if you have a significant unsecured debt. This is especially true, if you are facing financial hardship and considering bankruptcy as a last resort.
However, debt settlement comes with risks, including potential damage to credit scores and possible tax implications. So you should make sure to work with a reputable company and fully understand the terms.
Based on Housser’s opinion, you should consider debt settlement if you;
- have significant unsecured debt (e.g., credit cards, medical bills).
- are facing financial hardship and unable to make minimum payments.
- are considering bankruptcy as a last resort.
Related: See how to reduce your debt with a settlement letter.
Credit Counseling
Non-profit credit counseling agencies offer services such as budgeting assistance, financial education, and debt management plans. They can help you create a plan to repay your debts in an organized manner.
Katie Ross’ (Education and Development Manager at American Consumer Credit Counseling (ACCC)) opinion on Credit Counseling.
Katie Ross suggested that credit counseling is valuable if you need education and personalized plans to manage your debt effectively. She said It provides a structured approach to budgeting and financial planning. This can be particularly beneficial for you if you’re feeling overwhelmed by your financial situation.
Based on Katie Ross, you should consider credit counseling if you fall in one of these situations;
- Struggling with budgeting and financial planning.
- Seeking guidance on managing debt without necessarily reducing the total amount owed.
- Prefer working with non-profit organizations focused on consumer education.
Debt Management Plans (DMPs)
Under a DMP, a credit counseling agency negotiates lower interest rates and monthly payments with creditors. You make a single monthly payment to the agency, which then disburses the funds to creditors.
Rebecca Steele’s (CEO of the National Foundation for Credit Counseling (NFCC)) opinion on DMPs.
Rebecca Steele suggests that Debt Management Plans (DMPs) can significantly reduce interest rates and monthly payments, making it easier for you to pay off your debt over time.
This disciplined approach requires a commitment to the plan, but it can be an effective way to manage and reduce debt systematically.
Based Rebecca’s opinion, you should consider DMP if you;
- are with high-interest credit card debt.
- seek lower interest rates and simplified payments.
- are committed to a structured repayment plan.
Bankruptcy
Bankruptcy is a legal process that allows you to eliminate or repay your debts under court protection. There are two main types of bankruptcy:
- Chapter 7 Bankruptcy: Liquidates non-exempt assets to repay creditors and discharges remaining unsecured debts.
- Chapter 13 Bankruptcy: Involves creating a repayment plan to pay back debts over three to five years.
Cara O’Neill’s(Bankruptcy Attorney and Legal Editor at Nolo) advice on bankruptcy
Cara O’Neill advices that you should consider Bankruptcy as a last resort. But if you’re unable to manage your debt, bankruptcy can be a necessary step.
She also mentioned how essential it is to understand the long-term implications and work with a qualified attorney to navigate the process effectively and achieve a fresh financial start.
So, based on her advice on this debt relief program, you should consider bankruptcy if you;
- are with overwhelming debt and no feasible way to repay it.
- are facing legal actions from creditors (e.g., lawsuits, wage garnishments).
- seek a fresh financial start.
Government Programs
Various government programs provide debt relief, particularly for student loans and pandemic-related financial hardships.
Student Loan Forgiveness Programs: These include Public Service Loan Forgiveness (PSLF) and income-driven repayment plans that forgive remaining balances after a certain period of qualifying payments.
COVID-19 Relief Programs: Temporary measures to assist individuals affected by the pandemic, such as mortgage forbearance and enhanced unemployment benefits.
Betsy Mayotte‘s (President and Founder of The Institute of Student Loan Advisors (TISLA)) opinion on Government Programs.
According to Betsy Mayotte, government programs could offer you critical support if you’re struggling with specific types of debt, such as student loans or pandemic-related hardships.
She also advised to stay informed about eligibility requirements and application processes which is essential to maximize the benefits these programs provide.
Based on Betsy’s opinion, you should consider Government Programs if you are;
- a borrower with federal student loans seeking forgiveness options.
- impacted by the COVID-19 pandemic facing temporary financial difficulties.
- a homeowner needing temporary relief on mortgage payments.
Non-Profit Organizations
Various non-profit organizations provide assistance with housing, utilities, and other essential expenses, helping you to free up funds for debt repayment. Examples include community action agencies and faith-based organizations.
Michael Best’s (Director of External Affairs at the Consumer Financial Protection Bureau (CFPB)) opinion on Non-Profit Organizations
Non-profit organizations play a vital role in providing emergency assistance and support services. These organizations could be a lifeline if you’re in immediate need of financial help. They offer resources to stabilize your situation and prevent further debt accumulation.
So based on this opinion, you should consider a Non-Profit Organization if you’re;
- facing temporary financial crises.
- in need of support with basic living expenses to avoid falling further into debt.
- looking for local resources and support networks.
Bottom Line
Choosing one of these debt relief programs depends on individual circumstances, like the type and amount of debt, financial stability, and long-term financial goals. It is essential to carefully evaluate options and consider seeking advice from financial advisors or credit counselors to make an informed decision.
By understanding the available programs and their benefits, you can take proactive steps toward managing your debt and achieving financial stability.
