If you have found yourself underneath piles of debt and struggling to make ends meet, debt relief may be a valuable solution. But this choice is not one-size-fits-all and requires some consideration ahead of time. Consider the qualifications necessary to undergo debt relief along with the two primary reasons to seek it: you cannot pay unsecured debts or you have considered filing for bankruptcy.

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What is debt relief?

Debt relief is a process companies take to assist consumers in avoiding bankruptcy and instead regain credit standing.

When is debt relief a good idea?

The intention of debt relief is to make the amount of debt you have become more manageable. It is a consideration for many looking to get more affordable monthly payments, secure a lower interest rate or decrease debt at a faster rate.

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What does it take to qualify for debt relief?

Requirements for debt relief range by the company but most typically there are debt minimums and maximums and you must be at least several months behind on your payments.

You cannot pay unsecured debts

Examples of unsecured debt range from the credit cards stored in your wallet, to any personal, or student loans to medical bills. If you have found yourself unable to pay these types of debts it may be a good idea to explore the process of debt relief. This is especially true if your unsecured debt is more than or half of your annual gross income.

You’ve considered filing for bankruptcy

The process of bankruptcy requires approval from a judge to dispute all outstanding debts and financial obligations. There are two primary types that borrowers file for, Chapter 13 or Chapter 7. While this option can feel like a clean slate, it comes with risk. If you have considered filing, it might be wise to first investigate the option of debt relief.

How does debt relief work?

The process of debt relief will likely require its clients to work with a company advisor to determine if they are a good candidate for this process. When entering this conversation, be prepared to share your current financial state along with the amount of debt.

Every company handles the process of paying down your debt differently but you will likely receive a savings account where consistent deposits will be made over an agreed-upon timeline. That money will then be used to pay back creditors through negotiation or settlement handled by the debt relief company.

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Keep in mind: Debt relief companies tend to charge fees that can range between 15 and 25 percent of your total debt balance.

Options for debt relief

Outside of handling negotiations on your own to lower your rate, consider the primary options when looking for debt relief.

  • Debt settlement. In this case, a debt settlement company will work as the intermediary to settle your debts, ideally for less than you owe. You will have to stop making payments and instead save the money separately. The primary risk here is potential damage to your credit.
  • Debt management plans. A debt management plan will help you save money in a separate account and a credit counseling agency will then distribute the funds to your creditors. A perk here is the ability to pay all of your debts in full.
  • Debt consolidation. Best for those with strong credit, consolidating your debt will help you secure a lower interest rate than initially agreed. Look out for fees when comparing these products.

Next steps

If you have found yourself unable to meet your monthly payments even after exploring do-it-yourself options, it might be time to explore debt relief. Though the best option comes down to your financial situation and future. Take the time to compare options to find the method that will protect you from any other financial headaches.