In this tight economy, millions of people in Michigan are struggling to pay off unpaid bills due to a variety of reasons, whether because of reduced income, medical emergency, or any of a number of other financial difficulties. The good news is, there are several proven debt relief options to help reduce stress and lower debts.
For some people, the debt relief solution may come in the form of a debt management plan (DMP), which is typically offered by credit counseling agencies and debt management companies. For other consumers, the path to reducing their debts may be through debt consolidation loans, or perhaps even through debt settlement where you may be able to settle credit card debts for considerably less than you owe.
Regardless of your situation, it is important to understand that you do have a variety of debt relief options available to you.
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Debt Relief and Stress
No one wants to be saddled with a huge amount of debt, especially when it feels as though there is no relief in sight. To add to the stress, consumers who are struggling to pay off their bills often have to deal with bill collectors calling them day and night. While it feels like you are alone, you need to know that consumers like you have certain legal protections against bill collectors under the Fair Debt Collection Practices Act.
More importantly, realize that there are a variety of proven debt relief options for you to consider that can not help to relieve stress, but possibly save you a substantial amount of money as well. Here's a basic overview of the options available to consumers who are searching for debt relief:
How Debt Management Works
Under a debt management plan (DMP) or program, all your unsecured debts that are placed in the program will typically be consolidated into a single, lower monthly payment that will be made each month to a credit counseling agency. To accomplish this, you must first identify a reputable credit counseling agency that can go to work on your behalf. Then, a credit counselor can begin to assess your current financial situation, see what income you have coming in, and what debts you have to pay each month, then make proposals on your behalf to each of your creditors, requesting lower interest rates, a waiving of late fees and penalties, and generally a more lenient repayment schedule, if needed. Under debt management, by stopping the accumulating a new debt, and paying off existing debt at a lower interest rate, and on a set and predictable schedule -- consumers have the opportunity to get off the debt treadmill and on the path to financial freedom.
Credit Card Debt Settlement
One popular form of debt relief is known as debt settlement, or what is also known as debt negotiation. Under a debt settlement program, the objective is to get credit card companies to agree to "settle" your debt for a substantially lower amount than what you actually owe. They may are may not agree to settle, but this is the goal of debt settlement. In order to encourage credit card companies to accept settlement offers, debt settlement companies will typically advise their clients to stop paying their bills each month so they can begin to save up cash that then is then used to negotiate a one-time, settlement with the creditor.
There is a fundamental difference between debt management through credit counseling versus debt settlement. With a credit counseling debt management program, you will be paying back the entire amount of your debt, hopefully at a more affordable interest rate and at a pace that you can realistically stick to every month. With debt settlement, however, your goal is not to pay back all that you owe, but rather to "settle" debt for a substantially lesser amount.
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A word of advice though before you proceed with debt settlement: As the term implies, debt settlement involves negotiation. Credit card companies may or may not agree to settle your debts. They are no obligated by law to provide debt relief. In the process, while waiting for a decision from credit card companies to settle, some consumers are not able to make their monthly payments and may be putting themselves at risk for legal action. On the upside, consumers who are able to set aside funds for a settlement amount have a greater opportunity to accumulate a settlement fund that can be used to settle with credit card companies.
Despite the fact that debt settlement typically will drive down one's credit rating, and the fact that debt settlement can lead to legal action against the consumer who defaults on the terms of their credit card agreement, debt settlement or debt negotiation still has become popular among those consumers who want to get out of debt with one lump-sum payment, and do it in a way that doesn't have as devastating effect on personal credit as bankruptcy.
Debt Consolidation Loan Option
Another potential solution used in debt reduction is a debt consolidation loan, which allows consumers to combine all their high interest debts into one lower interest rate loan. But, be aware of the potential risks of debt consolidation loans. While it is also a common and proven way for some people to pay off their debts and maybe even save money, there are some cases where people who take debt consolidation loans end up running high credit card debts all over againwhich means they now have high interest credit cards plus a debt consolidation loan still hanging over their heads. In addition, typically you must use your home or other personal asset to secure a consolidation loan. That means if you default on your loan, you could be putting your home at risk.
Credit Counseling Debt Management Plan
If you are serious about taking steps towards getting control of your credit card debt and learning better money management skills, a good debt management program may be an effective solution to help you reduce your debts relatively quickly, in as little as 3-5 years. Once you find a reputable credit counseling agency to work with, the Better Business Bureau (BBB) recommends that you make regular, timely payments, and to always read your monthly statements to make sure that your creditors are getting paid based on the plan they have agreed to with your credit counselor.
The bottom line is, no matter what form of debt relief you choose - whether it's a credit card debt management plan, debt settlement, or taking out a debt consolidation loan - be a smart consumer and do your research. Debt relief can greatly help to reduce your debts -- and help you gain control, or regain control of your finances.
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