According to a Center for Microeconomic Data quarterly report, the total household debt went up by 192 billion to $13.86 trillion – a 1.4% increase – in the second quarter of 2019. This was the 20th consecutive quarter. As it stands, debt has been a growing problem for US citizens for years now. In 2017, the average household had $131,431 worth of debt. A NerdWallet yearly analysis of US household debt revealed that an average family with credit card debt has about $6,829 in revolving balance.
The increasing debt can be attributed to the rising cost of living, which has increased by 30% compared to 28% in household income. Meaning, expenses like housing and food that have risen 32% and 36% respectively are exceeding household income. That’s why many families depend on credit cards to cater to their basic needs. There are also the medical bills that have gone high by a whopping 57% since 2003. In fact, a single medical condition can render a family completely broke.
It’s a frightening experience to find yourself in the middle of debt with no end in sight. The thought of not being able to fend for your family, and the potential of losing everything you’ve worked so hard for can be heart-wrenching. But luckily, there is a way to prevent the worst from happening – debt relief.
What is Debt Relief?
Debt relief is the reorganization of debt in a way to provide you with a relief measure, either partially or fully. It can take different forms and shapes: lowering the outstanding principal amount (fully or partially), reducing the interest rates on loans due, and/or increasing the loan term. In most cases, lenders will welcome debt settlement when the consequences of a debt default are seen to be critical, that debt mitigation is a better solution. Once the creditor agrees to take less than what you owe as complete payment, and the both of you devise a payment plan, no one will hound you for the money you don’t have. You also won’t have to worry about getting sued over a debt.
In some cases, debt relief may be the only way out of bankruptcy. A creditor can be open to reorganizing debt and offer relief (if someone owes a huge loan load and is having a hard time to make repayments) rather than risk them not paying. So what are the debt relief options for you when it comes to repaying what you owe?
Debt repayment options
Pay on your own
When you decide to pay on your own, you’ll need to look into your debt and come up with a plan to offset whatever it is you owe. Under this option, you may need to call your lenders to devise a payment plan or bargain for a lower interest rate. You’ll also be fully in charge of repaying your lenders monthly.
This is yet another common form of debt relief. It involves summing up multiple higher-interest debts into one lower-interest one. There are several ways to combine loans into one payment. You can take up a new loan to repay your unsecured loan or choose to combine your monthly payment. Debt consolidation can also fall under the “pay on your own” category.
Debt management plans
These allow you to pay your credit cards (unsecured loans) completely, usually with fees waived or at a lowered interest rate. It involves you making a single monthly payment to a credit management company, which in turn, divides it among your creditors. Note that your credit cards will be disabled until you finish the plan.
If you have an overwhelming debt but aren’t eligible for bankruptcy, then debt relief can be an excellent option for you. When done successfully, debt relief can reduce your loan by up to 40% – 60%. But in this case, instead of dealing with the creditors directly, you bring in a debt relief company that acts as the go-between. So, you make monthly deposits to the firm, and in return, the company negotiates a lump sum payment that is lower than the whole amount that you owe. The creditors will often accept the offer for fear of not being able to recoup their money. So once the deal is on, the debt settlement firm uses the funds you have been depositing to settle the creditors.