Debt Relief Programs Explained

Debt Settlement programs also known as debt negotiation programs are specifically targeted to deal with unsecured debts such as credit cards. The general model for this program is that the consumer has credit card debt, medical bills or other unsecured debts they are not able to pay due to a financial hardship.  This consumer is in financial distress, are completely unable to make their monthly payments and is considering bankruptcy as their primary option to resolve the issue. Unsecured creditors are generally last in line to collect from a consumer if they file for bankruptcy. Therefore if a consumer files for bankruptcy, unsecured creditors may not receive ANY of the amount due to them.  Reason stands that if the credit card debt is the primary reason for the consumer to file bankruptcy, if the creditor is able to significantly reduce that credit card debt so the consumer can pay it off, then they consumer can avoid bankruptcy and the creditor recovers at least a portion of the debt due to them.  How much the creditor will reduce the debt is part of the negotiation. This is called “settling a debt”.  You can attempt to contact and work with your credit card company directly to negotiate or settle a debt or you can hire professionals who understand the process and nuances of negotiating the best reduction for you.

Credit Counseling is technically is not a “debt relief program” in itself. This is a free financial evaluation and consultation service which is almost always the first part of a two part service offered by credit counseling companies. A credit counseling company will offer free consumer financial education as well as a free credit counseling session to evaluate your situation and offer solutions. These counseling sessions are mainly geared to helping people with common debts like credit cards, utility bills, misc. loans, car loans, medical bills and more. They are not specialists in more complex areas of debt like tax law, home foreclosure, investment or business losses, although they will likely be able to refer you to an expert in the appropriate area.  Your credit counseling company will bring together a budget to see if your able to pay your bills on time through better money management, or if your expenses greatly exceed your income and you will need to gain relief from your creditors. In the case of the latter, they may recommend you join a debt management program, which is a service that is NOT free, but is low cost. Read more below:

General Guidelines:

• Credit Counseling in itself is not a debt relief program. Read Debt Management plan for details:

Debt Management Programs

Debt management services have agreements with your creditors to make concessions on your debts. These concessions may include lowering your interest rates, reducing or removing late fees and over the limit fees. They do all this with the goal of lowering your monthly minimum payment so that you are able to make on-time payments and stop falling further into debt…and potentially headed towards bankruptcy. Your debt management company will tell you what your new monthly payment will be. You will be sending a payment to cover only the bills you have placed in the program to your debt management company and they in-turn will pay your creditors the amounts due. So although your debts are not actually consolidated, in a way your payment IS, because now you only have to pay one bill and all those bills in the program get paid. Debt management companies must be licensed to act as a debt management service. Debt management companies are compensated both by yourself with a monthly fee, but also are compensated by the creditors which can lead to mixed allegiances.

Debt consolidation is a process by which a person with a number of high interest loans, will take out a low interest loan, often a home equity loan, to pay off their very high interest loans – credit cards etc. By doing this they have essentially refinanced their debts at a lower interest rate. They have also “consolidated” all their debts into just a single debt and thus a single payment to the newly established loan.

The drawback of a debt consolidation loan is that the consumer is turning an unsecured debt into a secured debt. With unsecured debts like credit cards if you default, the creditor can cancel your card, put the bill into collections and damage your credit score.  With a home equity based consolidation loan, the loan is now backed by your home, so if you fail to make payments your home could be foreclosed upon. Turning an unsecured debt into a secured debt backed by an asset means you put that asset at risk.

General Guidelines:

• Types of debt accepted: Any and all types of debts can be “consolidated” into a new loan.
• Amount of debt required: Technical any amount of debt, however logically it should be substantial enough to outweigh the cost of a new loan.
• Qualifiers: Must have a home or assets with equity to draw against.

Debt validation programs offer to review your legal contract with any creditor to see if there are any parts of it that may warrant the entire agreement null and void.  If they find a violation they can attempt to negotiate with that creditor or take them to court in order to dismiss that debt. Debt validation companies mainly focus on legal contracts for credit cards, auto loans and on occasion home loans.

There is no true minimum debt amount, however your debt will need to be compelling enough for them to earn a profit. Although these companies are often law firms with attorneys on staff, they are not required to be attorneys and there is no guarantee an attorney will be working on your case.

This service area for debt relief is high risk, very aggressive and not widely accepted as a viable solution for consumer debts. This solution has traditionally been used in business where large business contracts have been breached and attorneys determine if one company or the other is required to abide by the contract.

When consumers owe Federal back taxes or State back taxes penalties and interest can add up fast! Fortunately, the IRS offers programs to help tax payers get back on top of their taxes due. Unfortunately, just like all taxes determining what kind of relief you qualify for and how to apply for it can be daunting.  In most cases a solid review of your past tax returns is necessary and an assessment of your current finances is required to qualify for some programs.  This is why a good tax debt relief service will also be Certified Public Accountants, Tax Accountants or Tax Lawyers.

There is very good news however;

Tax relief programs are a LEGAL part of the tax code, so getting help is just a matter of doing the paperwork to take advantage of the best tax program offered by the IRS for you. You can learn more about tax relief and get in touch with a tax debt relief company here.

The cost of college has increased faster and higher than nearly any other expense consumers have faced over the past 40 years. The result has been more students taking out more student loans and graduating with burdensome student loan debts that they can hardly pay. Student loan debt relief is in high demand, however the type of relief you may have available depends upon the type of loan you have taken out.

Federally Backed Student Loans

These loans and the potential relief programs for them is in continuous flux with new bills being written, passed and rejected on nearly a monthly basis.  Student loan payments have been deferred since COVID-19, however this suspension will end shortly. Unless new legislation is passed, there are few options outside of making minimum payments: See Federal Student Loan relief options here.

Private Student Loans

Private Student Loans taken out to pay for a college education can provide many more opportunities for relief.  With a private loan you have the opportunity to negotiate directly with your lender. You may be able to restructure the loan so minimum payments are financially feasible for you, you may be able to defer payments or in the worst case, these loans might also be eligible as part of a bankruptcy filing.  See more details about Private Student Loan relief opportunities here.

The term Bankruptcy has developed a very bad reputation, but honestly, it is a very reasonable and fair solution to a dire financial situation. People and businesses who file for bankruptcy are rarely “bad people” or “deadbeats” the most common reason for filing bankruptcy is because of an unexpected medical event that depleted all savings and terminated gainful employment. That is NOT a deadbeat.  So don’t be concerned about the negative stigma, explore what bankruptcy is, who it is for and IF it makes sense in your situation. We are not bankruptcy attorneys and we’re not giving legal advice here, just encouragement to explore and understand your options – Knowledge is power.