If you have taken debt for your purchases, it is essential to repay it back. However, it may not always be possible to fulfill debt repayments. This is where debt repayment comes to the rescue. Let’s find out what it is and how you can benefit from it.
Overview of debt relief
Here’s all you need to know about debt relief.
Definition
Debt relief refers to the measures that can be taken for reorganizing all the debts that a borrower has in case the borrower does not have the funds to repay the debt back.
How does it work?
Debt relief can work in multiple ways including the following:
- Reducing the amount of debt.
- Decreasing the rate of interest on the debt(s).
- Elongating the debt period (without necessarily increasing the rate of interest or the overall interest amount.
- Declaring bankruptcy under chapter 7 or 13.Â
Who is eligible for debt relief?
In order to be eligible for debt relief, the borrowers need to fulfill a few qualifying criteria that can vary based on the kind of debt in question, as well as the state where you are situated. Different kinds of debts will be subject to different types of debt relief parameters, and as such borrowers must check the requirements with the relevant authorities.
What types of debt relief are there?
There are multiple types of debt relief options offered by different debt relief organizations and private creditors, including the following key types.
Debt settlement
Debt settlement usually refers to an agreement where you have paid some portion of the debt back to the creditor and in case you need relief, the creditor agrees to settle for a lesser sum. This sum can be only as much as you have already paid, or some more amount depending upon the specific provisions of the loan terms.
Debt consolidation
Debt consolidation is when a borrower takes out a fresh loan in order to pay off any existing debts. Borrowers can choose whether they want to take out a new loan or get a new credit card to pay off the preexisting loans.
Bankruptcy
Bankruptcy is another way by which a borrower who can no longer pay off their loan seek debt relief. It is a legal process by which an individual can be relieved of their repayment options. It can usually be filed under chapter 7 or 13 of the Bankruptcy code depending upon the borrower’s unique circumstances.
How to choose the right debt relief option for your situation?
In order to choose the right debt relief option for your situation it is essential to consider the pros and cons of each type of debt relief option, and compare it in light of your unique situation.
For instance, if you declare bankruptcy under chapter 7 of the bankruptcy code, you will be relieved of your debt repayment obligations. However, all your assets including your home, vehicle, and others can be seized and liquidated by the courts in order to repay as much amount back to the creditors as possible.
Similarly, if you get another loan to repay existing loans, you will probably get that loan approved at a very high interest rate, and would still have to make the payments for the new loan. Although it will buy you more time, you will need to pay it all back along with the interest.
Conclusion
Debt relief can be a very useful tool for individuals or even companies that are no longer able to complete their debt obligations. However, it is essential for the borrower to choose the right debt relief option in order to ensure that they can fulfill the terms that each of the different options present.
Also Read: Optimizing Debt Collection: Maximizing Recovery Rates with Debt Recovery Services
