Many desire a debt-free life but only a few manage to reap the joys of being debt-free. Today’s fast-paced life has given rise to a number of factors that are responsible for people getting into debts. Consumer debt relief strategies roll out various programs that help deflate the debt bubble and bail out consumers from the debt stranglehold.
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Self-help programs
Self-help procedures kick-start by preparing a budget and defining your financial priorities. Take an account of all the outstanding debts, the income from all sources, and funds required to meet basic living expenses.
Work a realistic budget that devotes maximum amount possible to wipe away debts. On a priority basis, assign payments to debts that incur relatively high interest rates. If drawn precisely and followed religiously, a well-planned budget can put you on the road to recovery.
In case the going is still tough, contact your creditors and explain the reasons for being on a sticky wicket. Often, the creditors rework the payment plans to manageable limits for their debtors.
Credit counseling
When budgeting and money management techniques fail to relieve you of debts, seek credit counseling. Credit counseling involves sessions with professional counselors who are experts in finance management and budgeting. There exist a number of non-profit credit counseling agencies that you can contact.
Counseling agencies work in consultation with the debtor and after an intensive review of the situation, come up with a budget and money management techniques. The budget is personalized to an individual debtor’s paying capacity and outstanding debts.
Debt management plans (DMP)
Debt management plan is an effective consumer debt relief program. After analyzing a debtor’s case long enough, a credit counselor may propose a debt management plan. Under a debt management plan, the counseling agency contacts each creditor and negotiates for relaxing your payback plans. The creditors may agree to lower rates or absolve certain fees. Once such negotiations are carried out with each creditor, a plan is formulated to repay in accordance with negotiated amounts.
Under a debt management plan, the debtor routes the payment to individual creditors through the counseling agency. A single payment is made to the counseling agency, which disperses the amount to the creditors as agreed upon. DMPs can form an important constituent of a consumer credit card debt relief program.
Debt consolidation
Debt consolidation is another viable constituent of a consumer debt relief program. Like DMPs, debt consolidation too caters to unsecured debts and offers a single loan to pay off debts. Debtors opt for a consolidated loan in lieu of a collateral, which is then used to pay off outstanding debts. The loan is offered at reduced rates; however, the requirement of collateral converts unsecured debts to secured ones. The debtor remains obliged to repay this single loan rather than having to pay for each individual debt owed.
Credit card companies offer credit consolidation by allowing a card owner to transfer balances on all his/her cards on to a single, new card. The transfer is charged at very low rates, sometimes free of cost. However, the low rates may exist for a limited period of time and the card owner needs to check with the card issuer for details of rates, time periods, and hidden charges, etc. Thus, the credit card owner pays for a single card, once a month, and at rates much lower than the ones at which unconsolidated balances would have been thereby making credit consolidation a popular consumer credit card relief program.
To enhance the effectiveness of credit consolidation, cardholders should:
- Stop/restrict card usage.
- Pay more than the required minimum per month.
- Pay regularly without delay.
- Pay maximum towards the credit card balance.
Debt settlement
Another popular personal debt relief program is debt settlement. Settlement agencies take up the cause of a debtor with his/her creditors, and negotiate with them to settle for an amount effectively lower than the original sum.
Once an agreement is reached, the debtor has the option to make a one-time payment and clear away the amount or to pay a fixed monthly amount. Remember, debt settlement adversely affects an individual’s credit score. So, it is important to read between the lines when signing up a settlement agency. Thoroughly verify the charges and claims to avoid a scam-sting.
With all consumer debt relief options available today, you need to choose wisely the one that best suits your scenario.