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Debt Relief Program Types

It can be challenging to navigate the world of debt repayment. Especially for those feeling pressure from their debt, it is important to be clear about the available options available for easing debt payments. Here are some of the most important types of debt relief programs.

Debt Settlement

With debt settlement, borrowers are able to discharge their debt obligations while paying less than the full amount owed. When successful, this option can help consumers avoid collection calls and legal exposure. But while this from of debt relief can be useful in some extreme situations, it is important to carefully consider the risks involved. In the first place, it can be costly to pursue this path toward debt relief, as it can become expensive to pay for assistance in getting creditors to agree to a settlement. There may also be fees, penalties, and interest that must be paid in the process of paying creditors only the settled amount. Moreover, even if the creditor agrees to settle, the borrower may still be on the hook for any taxes that are owed on the amount of debt that was forgiven. Another factor to keep in mind is that one’s credit score might be negatively impacted by having delinquent accounts and debt charge offs on one’s report. These derogatory marks can remain for up to seven years, impacting one’s borrowing options down the road.

Debt Consolidation

One of the most popular forms of debt relief is debt consolidation. When consolidating debt, borrowers essentially take out a new loan to pay off of their existing loans. One benefit of this strategy is that it simplifies the debt repayment process, since consumers will then only need to deal with repaying a single loan, rather than several at once. It is also possible to extend the life of some of the loans in one's portfolio. This can result in more interest paid over the entire life of the loan, but it can also considerably reduce the monthly payments owed by the borrower. Some debt consolidation programs can also save consumers money in the long run. If a person’s credit score has improved significantly since taking out the original loan(s), or if the original loan terms were particularly unfavorable, it might be possible to get a better interest rate on the new loan. Depending on the amount owed and the length of the loan, small differences in interest rates can translate into big savings.

Tax Debt Relief

In some circumstances, taxpayers might have difficulty paying all of the money owed in taxes. In general, it is undesirable to get behind on tax payments, because the IRS can make life even more difficult by filing a tax lien or by garnishing wages. Fortunately, for those who are struggling financially, the IRS does offer some tax debt relief programs. One option open to taxpayers is to request for a filing extension, effectively granting more time to get together the money owed if approved. Another way the IRS offers relief to those facing difficulties is by establishing short-term or long-term payment plans. Like filing extensions, these require approval. When approved, the taxpayer agrees to pay their taxes in smaller installments over time. It is important to read the fine print carefully, though, as this option sometimes involves fees or interest payments. A final option is known as “offer in compromise.” Reserved for those facing more extreme cases of financial hardship, this option allows certain taxpayers to discharge their debts by paying less than the full amount due. It is not easy to qualify for this program, but for those that do, it can make a big difference to their financial situation.

Student Loan Debt Relief

Students are increasingly relying on loans to pay for the costs associated with attending college. Many graduates feel the financial pressure from these loans for years after leaving school, with many student loans taking 10 years to fully repay on standard repayment plans. Luckily, there are some ways to relieve some of the pressure from student loans. One common form of student loan debt relief is income-based repayment plans. These help lower the monthly payments on each loan, relying on the borrower’s current income to determine the reduced rates. This strategy can be helpful in the short term for those in a bind. However, it is important to keep in mind that by lowering monthly payments, these income-based repayment plans prolong the total life of the loan. As a result, most borrowers wind up paying more in interest over the life of the loan. One exception is for those who combine income-based plans with student loan debt forgiveness opportunities. These forgiveness opportunities are offered to borrowers who work in certain fields, such as non-profit workers, teachers, and public servants. By making on-time payments for 10 years (i.e., 120 consecutive months), these borrowers can have any remaining debt forgiven by the government. To take advantage of this opportunity, is important to make sure to enter income-based repayment plans so that there are is still some outstanding balance owed at the end of 10 years. Acceptance into this program is also contingent on approval from the government.