How Debt Relief Programs Help You Overcome Financial Challenges

People wind up in debt for a variety of reasons. They may have accumulated credit card debt from multiple purchases or taken out personal loans to cover expenses, or they might be struggling with high medical bills or an involuntary job loss. Whatever the reason, the result can be a staggering amount of unsecured debt that can cause significant financial hardship and stress.

Debt relief programs offer borrowers an opportunity to regain control of their finances and work toward a path back to financial stability. There are many types of debt relief, ranging from damaging (debt settlement and bankruptcy) to credit-neutral or credit-improving options like free credit counseling and debt consolidation loans.

A popular type of debt relief involves a debt management plan. These plans, typically administered by credit counseling agencies or debt relief companies, work to negotiate with creditors on behalf of borrowers to reduce interest rates and monthly payments. When accepted, borrowers make one monthly payment to the New Mexico debt relief agency, which then distributes funds to each of their creditors under the proposed terms.

The first step in a debt management program is a comprehensive credit counseling session that reviews your debt, income and expenses to create a budget and determine the appropriate plan of action. Some agencies offer individual, face-to-face sessions with a certified credit counselor, while others provide self-guided online credit counseling. Regardless of how you receive credit counseling, all participants will receive a personalized budget and action plan for paying off their debt.

Credit specialists then work with your creditors to negotiate lower interest rates, lowered or waived fees and a reduced debt balance. When these agreements are finalized, an affordable repayment plan is established that ensures a monthly payment that fits within your budget.

While debt settlement does come with some credit consequences, including a ding to your score initially and fees charged by the debt relief agency, it can help you pay off unsecured debt faster while also potentially saving thousands of dollars in interest charges.

Another form of debt relief is debt consolidation, which uses a new loan to pay off your existing credit cards. This can simplify your debt repayment schedule and potentially save you money on interest charges by reducing the number of credit card accounts you have open. This option is available through banks, credit unions and private lenders and is often offered at a lower interest rate than the average credit card.