Debt relief refers to strategies and programs that help you get out of debt more quickly by reducing or eliminating your monthly payments. Debt relief typically involves negotiating with creditors and servicers to reduce your total debt burden through settlement offers, lower interest rates, waived fees, or other concessions.
You may be able to undertake debt relief efforts yourself, though professional assistance can maximize outcomes. Doing it alone takes persistence and negotiation skills. This article will explore DIY debt relief options, their pros and cons, and when professional support makes sense.
When is debt relief needed?
If you owe more than you can reasonably afford to pay back, debt relief may help lighten the burden. Telltale signs you need debt relief include:
- Minimum monthly payments exceed 20-30% of your take-home pay
- Juggling multiple debts and barely keeping up with minimums
- Using credit cards or loans to pay other bills
- Getting late notices and calls from collectors
- Worrying constantly about money and debt
The higher your debt-to-income ratio and the more unsustainable your monthly payments, the more relief you likely need.
DIY debt relief strategies
The following are debt relief tactics you can undertake on your own:
Budgeting and cutting expenses
The first step is analyzing expenses to create a lean budget that directs as much money as possible toward paying off debt. Strategies include:
- Tracking every expense for 1-2 months to identify waste
- Cutting out non-essentials like cable TV and dining out
- Downgrading housing, vehicles, or services
- Pausing contributions to retirement accounts temporarily
- Taking on a side gig to increase income
Creating a strict written budget based on priorities helps guide efforts. Apps like Mint can track spending.
Directly asking creditors for relief
You can call or write creditors directly to request:
- Lower interest rates – Especially for credit card debt
- Waived fees – Such as annual fees or late fees
- Payment plans – Such as 3-6 months of reduced or paused payments
- Settlement deals – Such as paying a lump sum lower than the total owed
Be prepared to explain your financial hardship. Creditors may ask for income verification, so have documents ready. Payment history matters, as those consistently on-time may get better concessions.
Debt consolidation
Debt consolidation combines multiple balances into one new loan with lower payments. This can be done via:
- Balance transfer credit cards with 0% intro APRs
- Debt consolidation loans or personal loans
- Home equity loans or cash-out mortgage refinancing
The goal is to reduce overall interest costs. However, these options put your home at risk if you can’t pay.
Non-profit credit counseling
Non-profit credit counseling agencies like NFCC.org offer free or low-cost debt management plans (DMPs). DMPs negotiate lower rates and payments with creditors, combining everything into one monthly payment.
The agency handles negotiations and distributes payments. While fees apply, DMPs provide structure and guidance.
DIY debt settlement
With debt settlement, you stop paying creditors and set aside funds until enough accumulates to make settlement offers at 30-50% of balances owed. This requires discipline and saving for several months. Consult creditors beforehand to understand policies and eligibility.
When to get professional help
DIY options may not succeed on their own when:
- Debt totals $10,000+
- Multiple accounts are delinquent
- Lawsuits have started
- Wage garnishment is occurring
- You struggle with saving money
Professionals have expertise, leverage, and legal knowledge to get optimal deals from creditors. Options include:
Credit counseling
As mentioned, non-profit credit counseling agencies can set up effective debt management plans.
Debt settlement companies
For larger debts, debt settlement firms employ negotiators to secure agreements reducing balances owed. Fees often range 15-25% of enrolled debt.
Importantly, the firms take responsibility for resolving debts. Check credentials via TASC and the AFCC.
Bankruptcy
Chapter 7 or Chapter 13 bankruptcy wipes the slate clean through liquidation or court-guided repayment plans over 3-5 years. This provides immediate collection protection. Bankruptcy attorneys efficiently guide the legal process.
While bankruptcy damages credit initially, it may be the most comprehensive debt relief option.
Debt consolidation loans
Borrowing from an online lender, bank, or credit union can roll multiple debts into one potentially lower monthly payment. Interest rates are often lower than credit cards. Lending requirements are strict.
Weighing DIY vs professional assistance
Below is a comparison of key factors when considering DIY debt relief vs hiring a professional:
| Factor | DIY Debt Relief | Professional Assistance |
|---|---|---|
| Fees | None beyond interest | 15-25% of debt, plus interest |
| Credit impact | Damage if you stop paying | Damage lessened through settlements |
| Settlement likelihood | Lower success rates | Higher success rates |
| Time to resolve | 1-3 years typically | Usually 6-24 months |
| Account management | Self-managed | Full-service through term |
| Emotional burden | Stress of self-negotiating | Relief from experts handling it |
| Creditor relations | Potential damage | Firms handle communications |
Generally, DIY makes sense for smaller debts and highly motivated individuals. But most will benefit from professional guidance and resources for large, unmanageable debts.
Debt relief warning signs
Watch for the following red flags if seeking professional debt relief:
- Asking for large upfront fees before services rendered
- Guarantees of specific settlement amounts or terms
- Telling you to stop paying creditors altogether
- Require giving access to bank accounts
- Negative reviews and unresolved complaints
Only choose reputable, established firms. Get comparisons from multiple providers before deciding.
Improving financial health long-term
To sustain financial stability after debt relief, it’s essential to:
- Stick to a needs-based budget that controls spending
- Build emergency savings to avoid future debt pitfalls
- Avoid unnecessary borrowing and credit use
- Monitor credit reports and scores regularly
- Invest in education or skills to increase earning ability
Pursuing strategies like these requires discipline. But they lead to true financial health over time.
Conclusion
Debt relief can provide a lifeline when debts become unmanageable. Do-it-yourself approaches have merit, especially for smaller amounts. But professional guidance offers structure and expertise to resolve more severe debt, while protecting credit and assets.
The key is acting sooner than later. Debt tends to grow with compounding interest. But facing the issue head-on and consulting professionals puts you on the path to rehabilitation and a debt-free future. Just be vigilant of predatory firms and fees. With persistence and the right help, you can overcome debt burdens and rebuild financial stability.