Ultimate Guide to Debt Relief


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Written by: Alice Stevens | Best Company Editorial Team

Last Updated: July 9th, 2020

Debt is overwhelming and can keep you from pursuing goals or life dreams.

You can take steps to regain control of your finances and get out of debt. The chapters below will help you explore your options and decide which one may be a good fit for you.

Chapter 1: Credit Counseling

Credit counseling is financial education. You can get help from a personal finance professional with setting a budget and making a plan to pay down debt. Credit counseling is great because it allows to your explore your options and get specific advice for your financial situation.

Chapter 2: Debt Management

Debt management programs are offered by credit counseling companies. Enrolling in these programs freezes your credit, so you won’t be able to open new accounts. These programs can also simplify your bill paying because you’ll make one monthly payment to the credit counseling company, and they’ll divide it among your creditors. The credit counseling company will also work with your creditors to negotiate interest rates and late fees. You’ll pay a monthly administration fee and a one-time enrollment fee.

If you make regular monthly payments, debt management can have a long-term positive effect on your credit.

Chapter 3: Debt Consolidation

Debt consolidation means taking on a new loan to immediately pay off your current debts. You’ll need to make regular payments on your new loan to get out of debt and build your credit. Ideally, you’ll want to find a loan that has a lower interest rate than your current loans. However, it can be difficult to qualify for a new loan and good interest rates if your credit score is low.

If you have a lower amount of credit card debt, you can try a balance transfer instead of taking on a personal loan. This is only advantageous if you can pay the bulk of your existing balance off during the zero interest promotional period.

Debt consolidation is a good way to take on your debt if you’re committed to making monthly payments. It ultimately helps your credit.

Chapter 4: Debt Settlement

Debt settlement allows you to settle your debts for less than what you owe. However, you may have to stop making any payment on your debts to help incentivize settlements. This will have a negative effect on your credit. Settled debts will be marked as settled on your credit report.

Some creditors may not accept settlements. However, debt settlement can be an effective strategy to get out of debt if you’re overwhelmed.

Chapter 5: Bankruptcy

Bankruptcy is often viewed as a last resort in debt relief. However, it can be beneficial because it quickly resets your finances. Declaring bankruptcy is a legal process that discharges some kinds of debt. Once debt has been legally discharged, you are no longer legally obligated to pay it.

Bankruptcy also helps protect some of your assets so that you still have the things you need to work and live. Keep in mind that your definition of need may be different from the court trustee’s definition.

Bankruptcy stays on your credit report for seven to ten years and can have a negative effect on your credit score.

If you're considering filing for bankruptcy, work with a lawyer with that specialty. They can ensure that everything is done correctly and avoid legal pitfalls.

The Top Debt Relief Companies

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#1 Freedom Debt Relief chevron_right
9.9 Overall Score
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#2 Consolidated Credit chevron_right
8.7 Overall Score
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#3 CreditAssociates chevron_right
8.5 Overall Score

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