If you’re struggling with consumer debt and can’t seem to dig your way out, you’re not alone. In fact, you are one of many millions of Americans who deal with debt and its consequences in any given year.
Fact: The average adult with a credit card carried $6,348 in debt, paying an average APR of 15.54%. So far in 2019, we have also paid $104 billion in credit card interest and fees, which is 35% more than Americans paid five years ago.With these figures in mind, it’s no wonder so many of us continue to fall further and further behind. The painful reality is that 70 million Americans were contacted about a debt in collections in 2018, which typically means their debt was in default for at least 180 days. Debt collectors call consumers to follow up on these debts over one billion times per year, with up to 15 calls made per account per day.
While consumers can sometimes figure out a way to pay debt off on their own, there are strategies that can expedite the process. Some opt to consolidate their debts with a new loan that offers better terms and a lower interest rate, for example. Others sign up for a debt management plan, which is a debt repayment plan operated by a third-party credit counselor. Finally, some consumers opt to negotiate their debts down through a process known as debt relief. This option comes with its own share of pros and cons, and risks for consumers. Before you decide to settle your debts, understand how it works, what the consequences might be and who can help you manage the process. This guide was created to explain your options and offer all the information you’ll need to decide for or against debt relief.
Unlike debt management plans, which are often offered by nonprofit companies, debt relief programs tend to be administered by for-profit organizations. With debt relief, the company you work with aims to negotiate a “settlement” with your creditors that is less than the amount you owe.
Since you’re already behind on your debts before you begin this type of plan, the debt relief company asks you to save a specific sum of cash each month in a dedicated savings account.You do maintain ownership over the funds you save as well as any interest that accrues in your account, though your debt relief company may ask you to stop making payments on your debts during the negotiation process, resulting in you purposely putting yourself further in default. The end goal of these programs is that once a settlement amount is reached, you would have saved enough cash to pay the lowered amount in full. Once the final lump sum payment is made, the accounts are considered satisfied.
While debt relief is an imperfect solution to a complex problem, this strategy could be the best option for you. Here’s how you can decide if it’s right for you:
