Debt Relief Programs for Different Kinds of Debts

Explore debt relief programs and other options so you can find the fastest, easiest way to get out of debt.

Debt relief is a general concept that encompasses many of the options presented on this page. Any approach that allows working off debt quicker, smoother, and more beneficial. We will explain, among many things, the concept that is referred to as debt consolidation. This covers personalized and professionally advised debt management options, such as consolidation loans. Other plans emphasize paying off all of your debts to rescue your credit score. Others are concerned with offering the quickest conceivable escape from drowning in debt.

This informational web page will help you consider all of your debt repayment solutions. Please check our Consult a Professional feature if we haven’t answered all your pressing inquiries here.

A Guide to Debt Relief

  • Basic debt relief programs
  • Exploring Debt Reduction Options
  • Effective debt reduction solution for any form of debt
  • Debt reduction options: direct comparisons
  • Suggestions for locating a reputable debt reduction firm
  • Debt reduction services operated by the government
  • What effect does debt reduction have on your credit?
  • The ‘Do-nots’ of debt relief

Basic Programs to alleviate Debt

Often people point to two kinds of debt reduction schemes whenever they speak about debt relief. There are debt management programs provided by professionals that will assist you with reducing your debt. If you can’t fix your debt problems on your own, you can join these services for help.

Programs to consolidate your debt

To minimize credit risk, debt consolidation plans pay off all of your debts in full. The objective is to reduce or remove interest and fee costs. Since you can concentrate on paying down the principal interest, you can stay make your debt more manageable.

Based on the type of debt you choose to pay down, debt reduction plans can have various confusing names, so let’s break it down:

  • Credit cards, as well as unsecured loans, are consolidated into a debt restructuring plan or a debt management program
  • Back taxes owed to the IRS, an Installment Agreement (IA) consolidates the debt.
  • Many forms of student loans issued by the government are consolidated into federal educational loan repayment programs.

Pros: Debt reduction services are used for those who are dedicated to repaying any of their debts. It improves their credit score and gives them a feeling of pride or assurance because they have fulfilled their commitments.

Cons: Restructuring is more expensive than arbitration so you would cover the principal and interest. It also can be played out over a great duration of time in most cases.

Settling your debt

Debt settlement plans are designed to help you move into a positive net worth as soon as practicable by keeping spending to a minimum. They ensure you can pay down a lot of the obligations you owe. Since the aim is to simply compensate for a fraction of the total balance, interest and penalties aren’t a concern when you resolve the biggest debts.

Debt arbitration is another term for debt resolution, meditation, settlement, or negotiation. (OIC) An Offer in Compromise is a tax debt payment package that you can use if you owe the Internal Revenue Service money.

Pros: When it comes to settlements, it’s just about getting it done quickly and at a low price. When you want to get out of bankruptcy quickly, you may consider the option known as a debt settlement. It gives you the same sort of fresh start as bankruptcy does. However, it leaves you in control of the deal rather than handing it over to the judiciary which can result in supplementary legal fees.

Cons: The advantage of just paying a portion of your debt has a cost attached: credit loss. Any debt you pay off leaves a stain on your credit sheet. This punishment remains in effect for seven years. It lowers your credit ratings, making it more difficult to obtain money advances as soon as you reach a settlement. It is possible for you to potentially receive a loan, but the prices would be exorbitant and the conditions would be much more restrictive. Take action to restore your financial reputation once you’ve settled.

A credit card’s outstanding payment might be preventing you from achieving your goals! We can show you how to manage your allocated credit effectively here.

Exploring debt reduction options

Maybe you’re unsure whether or not you need expert legal or financial assistance; many choices are available to you to pursue. Note that debt relief applies to any strategy that allows you to move into the green quickly, easily, or at a lower cost. Apart from structured debt management plans, there are several DIY debt reduction solutions to explore. You should deal individually with the issuer of the loan to come up with a viable alternative.

Deferment

You can use this tool to put a stop to your loan repayments for the time being. This works by you getting permission from your provider to put your monthly installments on hold without incurring fines. It also has no detrimental impact on your credit score.
Because there are extenuating conditions, interest continues to accumulate throughout deferment.

This means that…
A sponsored government college loan, you might postpone making payments until after you graduate. When you are in an educational institution, the feds pay your interest.

If the debts are not subsidized, though, installments are postponed but debt continues to build up.ionThis ensures that the sum you owe grows until you graduate.

Student loan forbearance is perhaps the most popular form of deferment. Some forms of debt, on the other hand, maybe postponed. What you need is lender permission. Inquire with the servicer for repayment deferment options. If you’ve suffered a temporary loss and are unable to meet the payments, this is a viable solution.

Forbearance

Deferment is more or less equivalent to this approach. The lender offers to limit or stop your obligatory contributions regularly. Deferment times are usually longer than forbearance periods. The sooner you visit your loan provider at the first sign of trouble the more likely they are to give you forbearance. You should seek forbearance until you get ahead of your obligations if you fear you won’t be capable of paying them.

Student loans and leases are popular examples of debt reduction. Also, for guaranteed federal student loans, interest charges often accrue, unlike deferment. However, qualifying for forbearance is normally better. This method may also be applied to other forms of debt, such as credit cards.

What does Refinancing entail?

Though postponing your debt or choosing other options temporarily alter your payment plan, refinancing permanently alters your debt. The aim is to reduce the interest rate on your loan. Other perks, such as reduced mortgage fees, could be available.

You can build capital throughout your contract by lowering the pace of your spending. Mortgages, car loans, and private school loans can also be refinanced. Your credit report qualifies you for a fresh interest rate. You will have to pay closing expenses again if you refinance your mortgage.

Refinancing student loans is not possible with a government program; you would have to resort to a private provider.

An interest rate agreement is a process of lowering a credit card’s interest rate.
If possible, apply for a cheaper overall cost; refinancing is the best option. Getting a good refinancing deal means you’ll need a higher credit score than when you first applied for the loan. Recall that the interest rate will be influenced by a variety of variables. In a stable market, the US Central Bank or Federal Reserve lifts interest rates. As a result, refinancing is less advantageous.

Modification of a loan

Modification, including refinancing, permanently alters the provisions of a lending deal. Though refinancing lowers your rates, modifying the loan will alter the principal sum or the contract period. You may also change the rate from dynamic to set. Much of the time, you alter it to comply with your desires or to lower your payments.

The most popular forms of the loan modification are mortgages. Modification aligns the principal with the land valuation if the house is worth less than the residual debt balance. During the 2008 mortgage crisis, modifications became widespread. The federally subsidized adjustment initiative (HAMP) concluded on January 1, 2017. As a result, modifications are becoming less popular.

Debt Consolidation

It is possible to consolidate your debts through debt restructuring. You combine many loans into a grouped up monthly payment with a relatively low interest fee. You take out a fresh loan with a sum sufficient to cover the current debts. You’ll only need to pay off the most current account of a bundled-up debt.

Consolidation, like refinancing, is also determined by your financial trustworthiness which is calculated through your credit score. You must be qualified for a loan at a lower interest rate. It can even help you save money on your subsequent payments.

We will look at two ways to proceed:

A personal restructuring loan may be used to merge most debts. Consumer credit, prescription, vehicle loan, as well as back tax debts to the Internal Revenue Service are all forms of debts that are counted under this umbrella.

Consolidating student debt necessitates the use of specialized loans.

Consolidate federal student loans into an FDC or Federal Direct Consolidation Program. This has little impact on your interest rate. The goal is to ensure that any of your government loans are available for recovery and reimbursement via educational loan reimbursement and forgiveness services.

You must have a private student repayment consolidation plan to lower the costs.

Forgiveness in debt

Forgiving debt means that debt is repaid entirely without any consequences. The investor forgives your loan without any further payments or credit charges if you fulfill certain qualifying conditions. They declare the debt to the credit bureaus as settled.

As you would expect, this is very uncommon. Federal educational loan debt is the most popular form of redemption. However, you have to be a member of the armed forces or work in a front-line career such as healthcare or education to be qualified.

More rarely, your tax debt can be part of forgiveness relief programs. You must show that moral liability for the debt was really out of your hands. Under the case of the Innocent Spouse, this occurs. You show that your partner owes taxes without your understanding.

Working out Arrangements for Repayment Plans

A workout agreement is a reimbursement package you establish for a single borrower directly with the lender. Only credit cards are eligible for this type of relief. If you get late on your payments and wish to stop an account from being written off as a loss and closed to future charges, the insurer can put a hold on your books and work out a payment package that you can handle.
The creditor can “re-age” the account in certain situations. They request that late fees be removed from your credit report and that your account be brought current. Missed payments would no longer affect the credit score.

Agreements on settlement

Since you pay the loan with less than you’re indebted for, this form of relief is close to a debt recovery plan. A settlement structure uses a financial firm to resolve several debts simultaneously. You sign arbitration agreements with private creditors or debt collectors on your terms.

Personal arbitration arrangements may be set up in the following fashion:

  • You propose a collector a mediation deal, and they consider it.
  • You negotiate a deal with a collector after receiving a settlement request.
  • Surrendering your Assets Voluntarily

Conceding property linked to debt is known as voluntary surrender. This releases you from the contract. The word “voluntary surrender” applies to surrendering an automobile to slip the obligations of a car loan. Voluntary repossession is another name for it that you might encounter.

You may still use a voluntary surrender process to prevent the legal action taken to recover a sum from a defaulted mortgage on your house. A deed-in-lieu-of-foreclosure is the technical term for this. During the 2008 mortgage crisis, this was a popular debt solution for homeowners. Some debt-ridden individuals accepted “payment for keys” services from lenders to avoid bankruptcy and increase their liquid assets.

By choosing to surrender voluntarily, you’re still significantly lowering your credit score. As a violation of the contract signed by both the creditor and borrower, lowering your overall credit score is an inevitability.

You may even be subjected to penalties because of a failure of judgment on your behalf. Voluntary surrender helps the landlord to recoup some losses by selling the land. The lender, though, retains the ability to prosecute you for the total owed sum in the circumstance the sale does not offset the whole debt.

The Last Solution: Declaring Bankruptcy

Bankruptcy should only be used as a last resort. A good portion of your debtors will have to cancel your debt and simply take the loss, however, some debts will follow you for the rest of your life.

The most common form of declared bankruptcy is called “Chapter 7 bankruptcy” and operates by selling anything of value that you own to pay off the most debt. Chapter 13 bankruptcy is a slower but less harsh solution where you set up a long-term intention to pay off as much debt as possible before it is eventually cancelled.

Effective debt reduction solution for any form of Debt

Relieving Credit Card Debt

Here we will explore some financial methods for you to shrink your credit card debt. These options can be moulded to your personal preferences and are very convenient. These professional alternatives are here to help you out of a tight spot if you feel too overwhelmed with all the language.

DIY methods

Relief Services

Forbearance

Plans for Consolidating Debt

Negotiating Interest Rates

Plans for Settling Debt

Transfer of high-interest balance to another credit provider

Rolling your debt

Restructuring Agreement

Debt Reduction Agreement

Exploring possibilities for alleviating credit debt

A lot of people try to manage their debts themselves, though the number of 0s piled up potentially create difficult situations in which the only resort is your own wily to increase your net worth. If you are struggling to escape the burden of debt, perhaps it is time to consult professional services.

  • Consumer credit advisory firms will help you navigate your date without incurring too large a penalty on your credit score.

●Agents from these firms will help you plan to tackle your debt by consolidating it and finding where your debt is unsecured.

  • Another alternative is a settlement company that will help you when your creditors start knocking on your door. These companies are equipped to handle credit card debt, uncovered hospital visits, private loans, and some other forms of unsecured debt.

It’s possible that these solutions won’t be enough to get you back on your feet. The most severe solution is bankruptcy, as unsecured debt can be cancelled through this. Bankruptcy, while carrying a heavy burden, is a fast way to balancing your accounts in the long run.

Discover how to increase your credit score here:

Relieving Educational Loans

Educational loans have a wide array of relief options when they become too burdensome. How you decide to relieve your student loans depends largely on whether you received them from the government or a private financial firm.

Debt repayment options for government loans

  • Forbearance
  • Deferring Educational Loans
  • Directly consolidating Federal Loans
  • Government Reimbursement Programs
  • Forgiveness of Loans as a Public Service
  • Debt repayment options for private loans
  • Refinancing
  • Settling loans privately

It is possible to follow the path of refinancing for loans given to you by the government. This process will transform federal debt into private debt, barring you from future admissibility into federal relief programs in the future.

Unfortunately, declaring bankruptcy will not guarantee to remove your liability for student loans. If you want to get these loans cancelled, you need to prove to the IRS that students loans are truly anchoring you from relieving other forms of debt. After declaring bankruptcy, you’ll need a top-notch financial lawyer to make your case for discharging student loans.

Meet with our specialists to discuss personalized debt relief options.

Relieving Tax Debt

It is possible to accrue debt from taxes and the IRS will look everywhere to get what they are owed. Forensic Accountants working for the IRS will withhold your paychecks (also known as wage garnishment), expropriate tax refunds, and place security interest rights on your home and bank accounts. They can do all this without warrants or even taking you to court. Tax debt is one of the most serious forms of debt and is usually the priority in a repayment plan.

There are a few technical terms you should be familiar with when it comes to relieving tax debt:

  • Currently Not Collectible (CNC) status is the term used interchangeably with deferment
  • Instalment Agreement (IA) is what the IRS calls a structured program to consolidate and repay your debt
  • Offer in Compromise (OIC) is the agreement between a creditor and a borrower to pay as much of the debt back as possible
  • Penalty Abatement is what is used when the individual is granted a kind of grace period after they have failed to file their taxes in time or simply has not paid them

The last item on that list usually is paired with the other terms. The IRS can penalize you up to 25% according to the total amount owed and the severity and quantity of tax codes you’re found in violation of. This is compounded interest and can leave you in the red for the foreseeable future. A reduction of these stacking penalties is possible, but you’ll have to act in a timely manner and would do best to enlist a chartered professional accountant or an accredited expert on taxes.

Is the IRS after you? Come see some ways you can avoid adding penalties and fees to your debt!
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Relieving debt on your Mortgage

Homeowners who cannot pay their mortgage can be in serious trouble when it comes to foreclosure. Having to find a place to live in the spur of the moment is an undoubtedly stressful and nerve-racking experience.

It’s not all bad news though, as we outline some of the options you can undertake to help you stay up to date with your monthly bills. There are two possibilities, one which entirely prevents foreclosure, meaning the seizing of your property from your creditor, and the second which does result in foreclosure, but will leave your finances largely intact.

How to avert foreclosure:

  • Forbearance
  • Refinancing with a new loan with different conditions and a lower rate of interest
  • Arranging a workout
  • Modifying a loan

Repayment Plans when Foreclosure is inevitable

The first two terms in the Repayment Plans when Foreclosure is inevitable are quite similar. In the second option, you become a tenant who pays rent instead of mortgage installments and can continue living in your dwelling. The Deed-for-Lease option is a solid choice when you have obligations tying you down the location of the property such as a nearby school or place of employment. In both of these options, you’re relinquishing your ownership of the property at the end of the agreed lease period.

The last option, the short sale is used when you need liquid cash flow quickly. You put the house on the market under the asking price and sell it at a net loss compared to the mortgage you took out on it. This loss will ultimately hurt the lender’s pockets more than yours. While a lender might approve of a short sale but can still take you to court over a “Deficiency Judgement”.

All of these last-ditch resorts will lower your credit score as much as a foreclosure on the property. When a lender forecloses on your mortgaged property, this will be on your financial record for the next 7 years. The same is applicable in a short sale and money for keys arrangement.

Relieving Debt from Automobile Loans

Car payments can be an added financial burden but are typically not the main source of it. As such, they are often used as collateral. If you don’t own your vehicle, then you might consider one of the following four options to relieve some of the pressure that comes with the financial squeeze of a surplus of debt.

  1. Forbearance
  2. Refinance your vehicle
  3. Consolidate your car debt
  4. Give up your vehicle as collateral

Forbearance, refinancing and consolidation won’t negatively impact your credit score, but the fourth option, which is akin to repossession, most certainly will.

Relieving Debt from Payday Loans

Payday loans are usually a small sum of money borrowed at high interest and repaid short-term when you receive your next paycheck. If you suddenly find yourself out of a job, then this high-building interest can leave you drowning in debt. Moving forward, you might consider settling this debt in or out of court as the rates can be upwards of 300%.

Conversely, if you’ve accrued debt from the misuse of credit cards, you can consolidate payday debt into a debt restructuring and repayment plan. Consolidating your debt by grouping it up into a convenient account to pay into will prevent the accumulation of hidden surplus fees that come from things like a direct debit transfer.

A debt settlement plan is still the best way to manage payday loans if that’s the only place your haemorrhaging money.

Relieving Medical Debt

If you don’t have medical insurance, even a short stay at the hospital might leave you heavily in debt. Some people are taken by surprise when they get collection notices in the mail even when they thought their insurance covered their medical expenses. However, depending on your insurance premium package, there can be certain tests, examinations, and other surplus costs that are not covered, meaning you’ll have to pay out of pocket.

This kind of debt can be insidious and is now considered the primary reason for bankruptcy by Americans.

You might choose to turn yet again to debt settlement to deal with hospital debt collectors. You can deal primarily with the debt collectors, though the better options would be to go directly to the hospital or clinic where you stayed and speak with their billing department. Some healthcare centres can help you establish a reimbursement plan over time and reign in the collection agents who might have been pestering you.

You can consolidate your hospital expense debt into your credit card debt with debt management programs, as there is no such thing as a management program exclusively for the medical bills. Signing up for the various programs with debt advisories to lump up your debt is useful, however, medical debts do not charge interest, so consolidation at that point isn’t especially fruitful given the intended purposes of lowering interest rates.

To this end, settling your debt with the creditors is still the optimal route for getting your books in the green again.

Debt reduction options: direct comparisons

Picking which way to reduce your debt can be complicated since there are so many options. Here we will directly compare the pros and cons of each in relation to each other.

Consolidating Debt VS Settling Debt

People often confuse these two terms. Even marketing campaigns tend to conflate these interchangeably, however, there are certain key differences that you can find here.

Managing your Debt VS Settling your Debt

These two options for debt relief can directly be compared here. Again, the differences are not so blatantly apparent to people unfamiliar with the financial jargon which can be very confusing.

Consolidating your Debt VS Declaring Bankruptcy

Consolidating your debt will change the course of your financial future in drastic ways when compared to declaring bankruptcy. Find out all about it here.

Settling your Debt VS Declaring Bankruptcy

If you are still hesitating because the differences between these two terms are unclear, then you can review the principal differences here to make the best decision given your accounting circumstances.

Suggestions for locating a reputable debt reduction firm

1. Always verify a company’s standing with the BBB
Financial planners who specialize in helping people out of debt should all technically have a rating. This is held on the record and can be found on the website of the Better Business Bureau or BBB. A company with an A letter grade might be more costly, it is almost always worth it to receive help from seasoned professionals who have been working in the field for a long period. The grade they receive isn’t always indicative of the experience you will have with them. Try looking for how the company deals with formal complaints lodged against them. While a select few may be unsatisfied with their customer experience, the way a company treats even the worst of eggs says a lot about how much value they place on their consumer base. In those circumstances, you should look for a firm that goes above and beyond to ensure that no customer is left feeling unsatisfied.

Another important part of verifying the company’s record at the BBB is to see if they have any legal action pending against them.

2. The Internet is a wealth of information                                                                                                                                                                         Learning how to search keywords on Google when researching which debt relief agency you want to help you is pivotal if you want to have the most seamless experience. Generally speaking, you want to see what 3rd party websites that specialize in ratings have to say about the company more than what they’re saying about themselves on their website. Many testimonials are hand-selected or blatantly made up, omitting the negative reviews that can speak volumes as to the agency’s trustworthiness.

Here are some good websites that rank these agencies:

  1. Trustpilot
  2. Ripoff Report
  3. ConsumerReports

Independent sites that are not receiving funding from affiliates are usually the ones that you can trust. Some review websites will remove negative customer experiences if the company pays them enough. If you want to get a true picture of what kind of people you’re dealing with, you’ll need to go on websites that use advertising or donations to make their money or at least have a policy of transparency when it comes to what’s keeping them afloat.

3. Look for a company that hires only licensed professionals
Any Tom, Dick and Harry can give you advice on debt relief, but that doesn’t mean you should listen to them. You’re better off trusting someone who has spent a whole lifetime doing this kind of work and is recognized by a professional program with some kind of certificate or licenses to operate. These certificates should have a seal either guaranteed by a professional organization or the government. All of these are good omens that you’re dealing with serious experts who will do more good than harm.

Trade associations and professional organizations are recognized within an industry for maintaining solid professional deontology, demanding the same of all their members. Two of these are the ACOM or Association of Certified Debt Management and the NFCC or National Foundation for Credit Counseling. As far as companies that can help you settle your debt, they should be listed by the AFC also known as the American Fair Credit Council.

If the company you are registering with is not part of any of these organizations, then you might be signing on with people who make big claims, but won’t be able to deliver everything they promised.

Another metric by which to gauge the reliability of a firm is if they have an association with a government body like the Department of Housing and Urban Development. This can be especially useful for firms specializing in building mortgage debt alleviation as they must undergo several seminars and training workshops and carry out their duties according to a very high bar.

4. Remain sceptical when a firm demands payment in advance
While no debt relief firms operate without charging you, it is important to remain vigilant and not incur unnecessary expenses by dealing with characters of ill-repute. You should expect to pay a few modest fees for the services rendered when working alongside a good firm, however these fees should come with some guarantees if your agreed-upon deliverables are not met.

Be wary then of companies who are simply looking to defraud you by taking your money right away and disappearing like thieves in the night. It is an unfortunate reality that those already down on their luck are often cleaned out by financial predators.

Any firm worth its salt only asks for remuneration after taking fiduciary action on your behalf. If they do ask for a deposit of any kind, make sure that they are signing legally binding contracts that guarantee your money back should they fail to help you alleviate your debt. Don’t be afraid to simply take your business elsewhere, there are many competitors in the debt relief market, some of which are certainly better at their jobs than others.

5. Trust your intuition after the first meeting
Debt relief firms will take a look at your accounts for free to determine whether or not they’re capable of handling your case. They will want to go over everything with a fine-tooth comb, though usually this only happens after they’ve reached an initial verdict on taking you on as a client or not.

These consultations are also your greatest opportunity to intuit a feel for the people you are entrusting your financial future to. If for whatever reason they make you feel uncomfortable because they seem incompetent, uncertain or confused, then it’s very possible that you’re not dealing with competent experts.

Remember that they should be able to answer all your questions clearly and thoroughly while making you feel certain that some of the more technical language is understood by you.

Initial consultations should never have a price tag. While it’s normal that they’ll be pressed to get your business, remember that you’re under no obligation to sign anything. It is highly recommended that you take meetings with multiple agencies before making your decision.

Professionals will understand that you might desire to weigh your options before proceeding and won’t pressure you to sign with them.

Debt reduction services operated by the government

The Federal Government sometimes will intercede on your behalf when it comes to particular forms of debt, though these tend to be rare and have limited windows of opportunity. These can occur in particularly challenging fiscal years like the housing market collapse in 2008 which lead to unprecedented economic recession.

Repaying Federal Student Loans

There are 8 different avenues you can explore to reimburse your student loans with the Government.

Let’s start by looking at the most popular choices:

  1. A plan to repay with graduated rates
  2. A plan to repay with standard rates

If you are not eligible for these or think you would be better served by signing on for different repayment plans, we have extensively researched guides on each of these for you here:

  1. Revised pay as you earn (RePayE)
  2. Income-based repayment (IBR)
  3. Pay as you earn (PAYE)
  4. Income-sensitive repayment
  5. Income-contingent repayment (ICR)
  6. Extended repayment plan

A Federal Direct Consolidation loan will guarantee that you qualify for the kind of government programs that can help you alleviate accrued debt. Standard Student Loan Repayment Plans combine all your different loans rolled in a balance that you’ll only need to pay at the end of every month.

While the sheer quantity of options here seem like a lot of extra homework for you to do, you can also ask your creditor to elaborate and offer a professional opinion on what is right for you given your circumstances.

Public Service Loan Forgiveness (PSLF)

PSLF forgives the loans you took out for your college degree without any penalties in the form of fees or lowering your credit score. President Barack Obama endeavoured to make this program more easily accessible to a larger group of Americans, hence why you may know it as

Obama’s Student Loan Forgiveness.

People can qualify for this program if they are already signed on in an IBR hardship-based repayment plan. These include Revised Pay as you Earn, Payable at year End, Income Contingent Repayment. On average, you’ll need to pursue a career as a civil servant for at least 10 years for your debt to be forgiven under this program, after which, all of your debt will be discharged without any other cons.
However, under the Trump administration and in the care of Betsy DeVos, the policy was changed so that the eligibility conditions are more stringent and, even if you do qualify, they will not pay off all your loans; a smaller part is instead covered.

The IRS’ Fresh Start Initiative: a new program for tax relief

The IRS decided to bankroll a new initiative in 2013 to allow some breathing room for Americans who had failed to pay the government what they were owed. This new program saw the elimination of tax liens and the IRS intercepting your pay to garnish your wages.

According to the IRS, this is what the new initiative exists for:

  • The debt owed must exceed $10,000 to merit IRS intervention and the emplacement of a Tax Lien on the Federal jurisdiction
  • A new web app can help you figure out an IA if the IRS is owed under $50,000 instead of filing a complete financial statement.
  • OIC entry was revamped to allow for larger pools of eligible applicants. The IRS is less stringent in their overview assessment of an individual’s capacity to catch up on back taxes.

Can the Federal Government help with Credit Card Debt?

Unfortunately, the government rarely gets involved when it comes to consumer credit debt. While certain legislative bodies oversee debt relief agencies when it comes to this kind of debt.

  1. The Federal Trade Commission sends inspectors to ascertain whether debt relief firms are operating within the bounds of the law and are not cheating their clients in any way.
  2. A law known as the Advance Fee Ban entitles indebted clients of debt relief firms to receive a minimum of service before they can be charged any fees.
  3. The FTC is responsible for running a number of debt relief advisory boards that do not operate on profit.

The aforementioned beneficent government extended bodies have 501c(3) status by offering services that are considered unprejudiced. They are obligated to help you explore each and every venue before moving forward and this must be rooted in your personal circumstances.

Having a regulated body like this creates the opportunity to receive advice from professionals before deciding if moving on to more expensive privately run premium services is a better alternative.

The 501c(3) entities receive bursaries and grants from credit card corporations like Visa, AmericanExpress and Mastercard to help you keep your debt management fees as low as possible.

What effect does debt reduction have on your credit?

Choosing which option you will move forward with when it comes to debt relief is incredibly important as it can determine your future eligibility for loans. As long as you’re pursuing options in which all your debt will be repaid without being discharged, then your credit score should remain the same as it always has been. Looking for opportunities to reduce interest rates where you can not harm your score.

If you are following a path where you know it will be impossible to pay back the debt owed in full, then you are leaving creditors with no other choice than to lower your rating.

If you are assiduous and make your payments promptly when refinancing, then this also shouldn’t pose any problems to your score. Consolidating your debt or modifying a loan’s payment plan to agree on a lower interest rate or a longer term with your creditor will also leave your score intact. Deferment and forbearance, as long as both the borrower and lender are in agreement, should also not have an impact on your credit score.

By seeking out arrangements with your creditors and showing you can always deliver payment on a consistent basis, you are building a positive credit history. Credit card debt management programs that ask you to close an account might result in small damage to your credit score depending on the circumstances and the program’s details.

Settling your debt, employing a short sale or having your collateral repossessed will lower your credit score for 7 years. Obviously, when your property is foreclosed or you are forced to declare bankruptcy, these will follow you for quite some time, with Chapter 7 bankruptcy carrying a penalty that can last a decade.

The ‘Do-nots’ of debt relief

While bankruptcy and debt settlement might seem scary and will leave your credit in shambles, they are sometimes the only door you have left. Sometimes it can be good to get a clean divorce from the debt that haunts you to carry on your life without a huge ball and chain weighing down your every step.

There are alternatives to bankruptcy and settlement that are arguably worse and will leave you in a precarious accounting position by going after assets that you normally would have been able to fall back on. Sometimes you have to ask yourself what cost you’re willing to accept to get a tabula rasa on your debt.

In the following sections, we will cover options that we strongly dissuade our readers from resorting to when looking to get some relief from debt.

Leveraging Home Equity

This option allows you to borrow cash in exchange for your homeownership to relieve debt. It is referred to as cash-out refinancing or Home Equity Lines of Credit (HELOCs). While on the surface this idea may appear to be a solid move to free yourself from debt given the value of your home, you are risking your entire home if you are unable to follow through on your debt payments and can quickly find yourself on the streets.

Your home equity should never be touched as it is the largest factor in calculating your overall net worth. Using HELOCs or cash-out refinancing converts your dwelling from an asset to a liability. This can create problems when seeking credit as your assets-to-liabilities ratio will be lower, resulting in much higher interest rates on any money you borrow. This ends up being something of a financial catch-22 and is ill-advised.

Paying off debt with your retirement savings

Using your pension, 401(k), or IRA to alleviate debt will leave you missing out on potential growth meant to be enjoyed after you’ve settled into your Golden Years. This can postpone your plans for leaving the labour force on top of stacking up early withdrawal fees of 10% on the total you remove from the account. This primarily concerns those below the age of 59 when it comes to the IRA or 401(k).

Don’t forget that the money taken out of this tax-advantaged account will leave it open to the IRS who is always hungry for their share. One way you can prevent some of these penalties is by setting up a Roth IRA instead of a traditional IRA.
We cannot dissuade you more than this: It is a terrible idea to use retirement savings to pay off debt unless you are okay working well into your 70s.

We will help you find the best route to explore when it comes to debt relief! Don’t jeopardize your finances unnecessarily by making uninformed decisions!