Debt Relief: What Are the Risks and Benefits of Seeking Debt Relief Help?
As the average American household struggles to manage its personal finances and debt burdens, the rising cost of living and median household income have outpaced each other; financial burden on millions of people.
From 2021 more than 77% of American homes have at least some form of debt to their name while the average US adult sits about with it $58,604 in debt. But even these average values are not the same across the generation spectrum.
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According to data released by Experian, total consumer debt has reached an all-time high of more than $14.8 trillion and is growing rapidly annual rate of 4% since 2015.
In the United States, Generation Z (aged 18 to 23) holds the lowest amount of debt at $16,043 while Generation X (aged 41 to 56) owes more than $140,000 on average. Debt repayments stagnated in the early months of the pandemic as the government attempted to freeze all or part of debt repayments while the Fed pushed for lower interest rates.
Even after the partial debt freeze and low interest rates, raised to 0.25% in recent weeks as the government tries to fight rising inflation, the debt burden is now overshadowing millions of American households, and only that get more serious.
As households struggle to come up with a manageable debt-paying strategy and the burdens begin to seep deeper into the pockets of the average American family, how can debt relief help alleviate the stress and difficulties associated with mounting debt?
What is debt relief?
Debt is no easy challenge, and while it depends on the type of debt you owe, whether it’s medical bills, credit card debt, student loans, unpaid or overdue taxes, or personal loans, debt relief is a strategy you, the consumer, are encouraged to make customizable debt-related payments either by yourself or with the help of debt settlement companies.
Ultimately, debt relief is an umbrella term used to describe a consortium of things. These include debt settlement, debt counseling, DIY debt relief, or debt management. Depending on the severity Depending on the situation and the type of debt you need to pay off, there are different options available to reduce your debt burden.
While consumers can choose from a variety of deleveraging strategies, that doesn’t mean things can always go as planned. Debt relief can hinder your overall financial growth and stability, and while debt has played a big part in it, the road to repayment isn’t without its uneasiness.
risk of debt relief
Yes, paying off debt is one of the most important things a person in a difficult financial situation wants to do. Getting your name out of debt can take years, and depending on your strategy, there are some risks to be aware of along the way.
Aimless debt management plans
A debt management plan can help you pay off certain types of debt, typically referred to as unsecured debt, such as credit cards. Even with a debt management plan, some participants fight to meet certain requirements or complete the plan at all.
If payments are missed or cannot be returned, credit unions and banks can close your credit card accounts. This leaves you without the safety net of a credit card, and while the management plan may not affect your credit score, closing an account can.
Lower credit rating
Accumulating any type of debt, especially ones that cannot be repaid, can directly affect your credit score. And while it might not sound like the most serious problem at this point, it could take up to ten years, if not longer, to restore your creditworthiness.
Some participants lay either for Chapter 7 or Chapter 13 bankruptcy, which can help pay off debts or amounts owed. In most cases, people have successfully filed for bankruptcy, but restoring your credit score can last 8 years.
Some strategies won’t necessarily hurt your credit score, but these only apply to people who don’t miss payments or default on their repayment schedule.
increasing your debt
Even if you are trying to pay off debts or arrears, you may end up in a situation where you are increasing your debt even more than it already is.
Some debt consolidation or other forms of credit may offer short-term debt relief, but they exist initial fees, interestand Punish also attached to it. In some cases, people rely heavily on their credit cards to pay off their debts, which is one of the last avenues to take as it can quickly lead to even larger repayments and the associated interest.
Taking out a consolidation loan may also come with a loan origination fee. Companies that are open to negotiating a debt settlement plan may charge you up to 15% to 20% of the amount paid or forgiven for their services.
Debt Relief Rewards
There is no better way to describe the feeling of being completely debt free, and while it takes a little time to finally get there, it is possible to completely break free from any debt burden.
Variety of Debt Relief Strategies
There is a different debt relief strategies available working to alleviate the burden of debt and the stress that comes with it.
While the road to complete debt freedom isn’t easy, it means you may need to lock down your car, a house, or maybe some valuable possessions. Being debt free puts you in a better financial environment and can help pave a path to financial growth.
Less debt, less risk
Having any form of debt in your name comes with an unimaginable risk if not managed properly. Unless your debt is completely unmanageable, you may be able to apply for a credit card with one 0% transfer offer.
This allows you to transfer all the debt you owe into one account, which means you only have to make one payment per month. This gives you some time to come up with a new management plan, but it also gives you some legroom to pay off any outstanding debt.
Rebuild your credit
It may have taken a little while, and yes it won’t be in a few months, for your credit score to be where it used to be, but you can now rebuild your creditworthinesswhile at the same time being more aware of how to better manage your debt.
Not all debt scenarios are the same, and it mostly depends on how well you are willing to manage your debt or how serious the situation can be. Finally, you have a few alternatives that you can either negotiate with or consult a debt counselor.
The final result
Even though it may seem like it’s completely impossible to pay off any type of debt, there are some strategies that will help you in a variety of ways. Paying off debt can look different for many people, and every scenario is not the same.
The severity of the bump should never be ignored or perhaps overshadowed by other financial strategies as it ultimately determines the health and standing of your short and long term financial endeavors.