Types of Debt Relief

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Introduction to the Types of Debt Relief

There are four debt relief options available for debtors today. These are bankruptcy, credit counseling, debt consolidation, and debt settlement. Each has a different approach, and each has different pros and cons, as well.

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Of all the debt relief options available, bankruptcy has the worst effects. A chapter 13 bankruptcy, for example, remains on your credit report for 7 years, while a chapter 7 bankruptcy remains for up to 10 years, and both result in a permanent public record.

While bankruptcy may appear as an easy way to get out of debt, it has long-lasting implications to your financial life. For example, creditors typically don’t lend or extend credit to individuals whose credit reports indicate a bankruptcy filing. For as long as it appears, you may have to live on cash, including emergencies which might be quite a difficult situation for some people.

Take extra caution when thinking of bankruptcy. It should be considered the last resort, when all the other options have been exhausted.

As a final thought, we put this out to our readers: what is more important to you? Your credit score? Or getting out of debt? If you can get out of debt without ruining your credit report, then that would be great. However, for people with only a few options left, compromising credit score for freedom from debt might just be a necessary sacrifice.

The Answer To Your Debt Settlement Concerns

Financial Rescue has the answer to your debt settlement concerns.

Most of our clients pay off their balances within 36 months with one low monthly program payment.

To ask additional questions and to find out if you qualify, contact us today.

Credit Counseling

In credit counseling, a debtor sits down with a credit counselor, who examines his or her financial struggles, then recommends the best approach for dealing with the debt. The credit counselor creates a Debt Management Plan (DMP), which the debtor must follow in order to get out of debt within the planned time period.

Depending on the debtor’s situation, the credit counselor may recommend other debt relief options such as debt consolidation, debt settlement, or bankruptcy.

Credit counseling is different than the Debt Management Plan. Credit counseling refers to the counseling session, while the Debt Management Plan refers to the action plan that is a result of the counseling session. In effect, credit counseling per se does not have a direct effect on credit, but the resulting Debt Management Plan may have.

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Debt Consolidation

In debt consolidation, all debts of a debtor are combined (consolidated) into one single loan that is big enough to cover the total debt amount. The loan will come from a debt consolidation company and will be used to pay off all the existing debt accounts. Because the individual accounts are already paid off, the debtor’s new creditor will now be the debt consolidation company. The benefit of debt consolidation is easier management of accounts, compared to having several separate accounts to pay off.

Debt consolidation, per se, does not have an adverse effect on credit score because you are simply taking out another loan to pay off several accounts. In other words, you are simply transferring your debt to another creditor. However, if you fail to pay your new creditor, your credit score will surely take a hit.

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Debt Settlement

In debt settlement, a debtor seeks help from a debt settlement company, who negotiates with his creditors on his behalf.

The debt negotiation process requires that debtors stop paying the monthly dues to justify a financial hardship; otherwise, creditors would think that that the debtor still has the financial capacity to make the monthly payments, and continue charging fees and interest. Debt settlement’s approach is to suspend the monthly payments, then offer the creditors a partial payment which should be considered as a full payment to the total debt, because that is all that the debtor can afford. Typically, it’s around 30-65% of the total debt.

Debt settlement is an aggressive debt relief option, and works for individuals who have real financial hardship, which can be justified in their income and debt levels. Because debt negotiation requires the suspension of monthly dues, it will negatively affect one’s credit score as payment history is a major factor in credit rating. However, this effect does not stay forever in the debtor’s credit report. Over time as payments are made from the chosen escrow account, the credit score will gradually increase.

The Answer To Your Debt Settlement Concerns

Financial Rescue has the answer to your debt settlement concerns.

Most of our clients pay off their balances within 36 months with one low monthly program payment.

To ask additional questions and to find out if you qualify, contact us today.

Disclaimer: Some programs and services may not be available in all 50 U.S. States. The information provided is for informational purposes only. No communication should be considered legal advice. Individual results may vary based on program terms, ability to save sufficient funds, underwriting guidelines, the creditors in your individual profile, and the willingness of creditors to negotiate. Individuals depicted in images and videos may or may not be employees, and some are actors or models, all of whom do not necessarily endorse or support Financial Rescue, LLC. Financial Rescue, LLC, does not assume any debt, make monthly payments to creditors or provide tax, bankruptcy, or legal advice.

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