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9 steps to make the most of your debt relief program
Reduce your debt by around 30% after fees — but only if you can stick with the program. Here's how.
Debt relief can be helpful if you're still struggling with debt after trying to manage it on your own. Often, it involves hiring a debt settlement company to negotiate down your balance in exchange for a one-time payment.
Companies like National Debt Relief can reduce your debt by around 30% after fees — if you can stick with the program. But many people drop out before it fully ends. These tips can help you make sure you see your debt relief program all the way through and get the most savings.
5 steps to take today
These steps can help you make an informed decision when you choose a debt repayment strategy.
Take stock of everything you owe
Go through all of your accounts and add up your total unsecured debts. Leave out federal student loans, mortgages, car loans and anything that is backed by collateral. These generally don't qualify for debt relief programs — though there may be other options to handle that debt.
Generally, you need at least $7,500 in debt to qualify for a debt relief program. But unless your budget is really tight, a debt relief program might not be the best option for amounts that low. The average level of debt level for National Debt Relief customers is around $28,000 to $30,000.
Try to complete this step on your own, even if you use a budgeting app like Mint for help, since sometimes apps can make mistakes.
Review your credit score and budget
Knowing your credit score and fully understanding your financial situation can help you decide what type of debt relief is available to you.
You can check your credit score using a free service online — often you can do this through your credit card account. You'll have the most options available to you if you have a FICO score above 670, which lenders consider to be good credit.
Calculate your monthly cash flow by subtracting your average expenses from your average income. If you get a number close to zero, you may need to find ways to make room in your budget if you want to pay off your debt quickly.
You don't necessarily need to make major lifestyle changes if this is the case. Small changes like switching car insurance providers or negotiating down your Internet bill can make a difference. If you can't make changes, there are still options.
Compare all your options
Make sure that debt settlement is the right choice before you sign up. For example if you have good credit, positive cash flow and owe less than half of what you make in a year, a debt consolidation loan can be a good choice. If your credit is mediocre but you have decent cash flow, using a DIY debt management method that focuses on paying off accounts with the highest interest rate or lowest balance could be all you need.
Don't have the cash flow to afford your current payments? Signing up for debt management to negotiate down your rates and lengthen your term may be more helpful than a full debt relief program.
But hiring a debt relief company to negotiate down your balance in exchange for a one-time payment may be a good option for higher debt loads. Generally, it's best for people who are facing financial hardship and don't think they could pay off their debts over the next 10 years.
Meet with a credit counselor
Nonprofit credit counseling agencies often offer free sessions to people who want professional advice on how to start. In a typical session, you'll go over your finances and come up with a debt repayment plan. Credit counseling agencies often offer debt management services and can help you decide if that's the right option for you.
Credit counseling can be helpful if you feel overwhelmed and don't know where to start. But it involves being open with a stranger about your personal finances, which may be uncomfortable for some people.
If you decide to sign up for a debt relief program with a company, compare a few providers to make sure you're signing up with a service that works for you. Ask the following questions to make sure the company you're working with is worth it.
- Is it legit? Make sure the company and owners aren't on the Federal Trade Commission (FTC)'s list of individuals and companies banned from debt relief. Look for companies that are members of trade organizations like the American Fair Credit Council (AFCC) and International Association of Professional Debt Arbitrators (IAPDA).
- Can I qualify? Most debt relief companies require you to have a minimum amount of unsecured debt to sign up — typically around $7,500.
- Can I afford it? You'll have to contribute to a fund to cover the settlement and fees. And while this is normally less than the minimum payments you're currently making, missing even one contribution could result in your program being ended.
- What's customer service like? You can tell a lot about a debt relief company by calling the customer service line. A legitimate company will be transparent about costs and risks of using the service. If they're aggressive about signing you up before you're ready, that's a red flag.
- How much will it cost? Debt settlement companies will usually charge between 15% and 25% of the debt you enroll at the time of settlement. If possible, try to get an estimate from multiple companies to find the cheapest service available.
4 debt relief tips
These tips can help you make sure you stay on track to finish your debt relief program on time.
Understand the full cost
One of the top complaints about debt settlement is that it's more expensive than expected. That's because many people don't consider the fact that interest often continues to add up while you're enrolled. Some also don't consider the fact that the IRS counts settled debt as taxable income.
You can adjust your expectations by going in knowing how much you'll owe on your accounts by the end of the program and being prepared to pay taxes.
Play it safe
Don't make any major career or life decisions that can impact your finances while you're in debt relief. Changes to your income can make it difficult to keep up with your monthly payments toward your creditors and settlement fund.
So if you were planning on quitting your job or going back to school, try to hold off until you're finished with debt relief. Personal safety is also a must to avoid piling on medical bills.
Make payments on time, every time
Missing a payment toward your debt relief program can cancel your contract, which is why it's vital to make payments on time. If you don't think you can complete the program, you have the option to cancel at any time.
Also, continue to make minimum payments toward any debt not enrolled in the program, like student loans. While missing a payment won't get you kicked out of a debt relief program, it will damage your credit score further and accrue late fees.
Don't take on more debt
Most debt relief programs tell customers to stop using their credit cards while they're enrolled. And with a debt load high enough to qualify for debt relief, you likely won't be able to qualify for a new credit card or personal loan.
Payday loans might be available in states that don't check your ability to repay. But high-cost financing like that will often make your financial situation much worse if you're unable to pay it back on time.
How the right debt relief company can help
The right debt relief company can help you avoid bankruptcy and can get you on track to improving your credit. It's often an emotional process, so picking a company you trust is essential to your success.
Read customer reviews and talk to customer service to make sure you're comfortable with the company's management style. Many legitimate companies also post a list of recently settled accounts online, which can help you understand what to expect.
Debt settlement might not be the right choice for everyone. And not every debt relief company can offer what you need. That's why it's essential to compare debt relief programs before you make a decision.
By knowing how to make the most of the process, working closely with your debt relief company and sticking to your program you can get out of debt and avoid bankruptcy.
Frequently asked questions
Answers to more questions you might have about debt relief.
Can I get my credit card debt forgiven?
You usually can't get your entire credit card balance forgiven. But signing up for a debt relief program or negotiating on your own can often get part of your credit card balance forgiven, in exchange for a one-time payment.
How do I get out of credit card debt without ruining my credit?
Enrolling in a debt management plan or using a DIY debt management strategy are both great options to get out of credit card debt without ruining your credit. If you're not sure which option is right for you, signing up for credit counseling can help you make that decision.
How can I get out of debt without paying?
Generally, the only way to completely cancel your debt without making any payments is to file for Chapter 7 bankruptcy. But not everyone can qualify. You must pass a means test to prove you truly can't afford payments. And you'll lose assets like your home and car. It'll also stay on your credit report for at least 10 years, so save it as an absolute last resort.
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