If you’re going to tackle something big but worthy, you’ll need a plan. That’s what debt relief is all about. It’s a way to take the financial pressure off your life — using a method that actually works for your particular financial situation.
There are multiple options to address debt so take heart and don’t feel pigeonholed.
Read on to find out more about debt relief and how you can use one of the options available to you to not only get help but become empowered with your finances.
If you’re wondering, ‘What’s the best way to get out of debt?’ the good news is, there are several ways.
You can use these options to reduce your debt load and then move to eliminate it completely. Every debt relief strategy is designed to restructure your debts so you, the debtor, can make repayments, eliminate debt, stop creditors from calling you, lower interest rates, reduce the amount of time you’re making payments for, and get back into the clear.
The ‘relief’ portion of these strategies is the operative word here. Each of these options are designed, in their own way, to provide that measure of partial or total relief from debt.
It’s best to seek financial advice when you’re looking at your options, especially if you’re the owner of a company, a partner, run your own small business as a sole trader, or have investments such as property, and assets like your home.
Each of these situations comes with their own considerations and you’ll want an experienced financial planner or counsellor to help you understand what impact debt repayments have on everything else in your life.
One form of debt relief is debt consolidation.
This comes in the form of a debt consolidation loan, provided by financial institutions like banks or credit unions as well as external lenders and creditors.
This loan is used to pay your debts and, in lieu of this, you’ll be able to make one monthly repayment towards the paying down of this new, larger debt. This debt consolidation loan usually also has an interest rate that is significantly lower.
Besides a direct loan, individuals can also look at options like mortgage refinancing to consolidate debt or a balance transfer.
A debt management plan can be either an informal, personal plan that you yourself craft and undertake or you could with work with an external counsellor to help you negotiate lower rates, speak to creditors on your behalf, and help you assess the impact of your decisions related to debt management.
In this case, you’d be making repayments to the credit counselling agency, which will then be responsible for paying your creditors. However, it also means that you’ll only be paying one sum every month to your creditors.
In a debt management plan, the end goal is as much about paying off your debt as it is keeping up your credit scores. This means you’ll have to take into consideration what pursuing a debt management plan means for your credit rating.
When you agree to a debt management plan, you may also be agreeing to closing your credit cards, which will lower your score. Once you complete the obligations of your formal debt management plan, you can start rebuilding your credit history and credit rating.
In a Debt Agreement, you, the debtor, are entering a legally binding arrangement with your creditors to pay back all of your debts. This is usually administered by a Debt Agreement administrator because once the proposal is accepted, your creditors are no longer allowed to contact you.
A Debt Agreement is highly beneficial for several reasons as a means of addressing personal insolvency. This means it’s not just about improving a bad credit score or paying off debt in a more manageable way. It’s also about paying off ‘unmanageable’ debt.
However, as the debtor, your proposal can include the number of monthly payments you can afford, based on your expenses and income, and the length of time you propose can be accepted or not. This places the power of the terms in your hands. However, note that you’ll be responsible for any upfront fees and DAA costs. Also, while it will help alleviate debt quickly, entering into a Debt Agreement is a mark that stays on your credit report for a minimum of five years.
Unlike Debt Agreements, declaring bankruptcy has a set time frame. After 3 years and one day, from the date you file for Bankruptcy you are discharged.
However, there are a few other things to note. Once you file for bankruptcy, you may not be allowed to travel overseas. You’ll also need to divest yourself as owner of businesses or companies you may preside over. Your assets will be handed over to a Trustee who has discretion as to whether or not to sell these and hand the proceeds to your creditors.
However, this form of debt relief is much more ‘instant’ than other options.
Regardless of which option you choose, debt relief helps you get your debts under control and reduces your financial stress. The method you’ll pick all depends on your income, your marital status, your personal assets, the amount of debt you have and your future financial goals.
However, the benefits of any of these forms of debt relief are clear: having a clear, structured approach to addressing debt, having a specific and actionable ability to make payments towards paying down debt each month, the opportunity and ability to build up your credit history and rating back up again, and the chance to start the slate anew.
All of these options for debt relief allow you to make moves now, so that you can accomplish future goals like owning a home, building a retirement fund, and securing your financial future faster.