It may be very frustrating and stressful not to be able to settle all your debts. No matter how hard you work, your income may still not pay for everything. Fortunately, some countries, states and international banks have adopted debt relief programs to partially or fully relieve a person, company or country from a huge burden of debt.
What is Debt Relief?
Basically, debt relief is the restructuring or reorganization of debt to grant a full or partial forgiveness or relief to the individual, company or nation that is under the burden of huge debt. A debt relief program is a solution for those people who have limited means of income, which affects their capacity to pay their debts.
In some countries, personal debt has been increasingly alarming. Thus, debt relief is provided. However, not all can qualify for a debt relief. There are certain conditions before one can avail a debt relief order.
Debt relief can be provided by banks, creditors, the government, specialized debt relief companies or insolvency service institutions.
What are the benefits and disadvantages of debt relief?
The primary objective of debt relief is really good, as it provides the debtors some sort of relief from their incapacity to pay their dues. It is a low-cost alternative for those who do not want to file a bankruptcy. Some debt relief orders also do not ask you to appear in court, in contrary to bankruptcy cases. For sovereign nations with massive debt loads, it may be helpful in order to recuperate from national financial circumstances.
However, the major drawback of debt relief is that it may promote more debts. Individuals and companies may abuse the program by unlimitedly borrowing money or engaging in debts in the expectation that the banks or creditors will grant them relief in case they cannot pay their debts.
What are the forms of debt relief?
Debt relief has various forms. They also come with varied qualifications, benefits, and conditions. It is important that you educate yourself on the various forms of debt relief available. All of them promise to partially or fully eliminate your debt.
A self-payment initiative requires you to communicate with banks and creditors. Firstly, you should organize a list of your debts and credits. Then, start calling all banks and creditors that you have debts with. Try to explain your circumstance and come up with an agreement. The agreement may involve lowering your interest rates, extending your terms and so on.
This is one of the most prominent forms. Debt relief companies will grant your debt relief order in which your debts will be put on hold for 12 months. Instead, you will pay to a separate trust account to recover in your circumstance. You and the bank or creditor will also agree with a specific amount to pay. However, debt settlements can affect your credit score.
There are various firms that provide consumer-credit counseling services. They follow a debt management plan or program to help you with your problems. Counselors will evaluate your circumstance and can also negotiate with banks or creditors on your behalf.
Debt consolidation allows you to pay for your debts through applying for a debt consolidation loan. You can consolidate your debts by applying for a loan from banks or credit unions. If you are a homeowner, you can get a home loan and use it to pay for your debts.
The last resort is to file for a bankruptcy. It will remove all your debt obligations. However, it will affect your credit badly. In most cases, it takes 10 years to eliminate a bankruptcy mark from your credit record.
How to qualify for the debt relief program?
Not everyone can avail or can be granted debt relief. Banks, creditors, and nations impose certain guidelines in approving debt relief orders, depending on their laws and constitution. In most cases, the basic qualifications for a debt relief program are as follows:
- The debt relief company requires that the amount of money you owe is more than the cap or limit. For example, you must owe more than $7500 to be granted a debt relief order.
- You should be several months behind in your payment obligations.
- You must be in a critical financial crisis so that you will eligible for a debt relief program.
For some debt relief companies, these criteria may include:
- The total value of your qualifying debts must be more than a designated amount declared by the organization.
- You are currently under another debt relief form, like bankruptcy.
- You are a homeowner.
- You have a domestic vehicle, motor, and other assets that can make up for your debts.
Debt relief can be available for debts with major credit cards, department store cards, gas cards, bank loans, installment loans, finance corporations and much more.
Qualifications vary from nation to nation or state to state.
How to apply for a debt relief order?
Applying for a debt relief order is very easy. It does not require you to go a court. These are the most common basic steps:
Complete your application
The debt relief company will ask you to fill in an application form to complete. You have to be very careful and detailed in providing your information. You can complete the application form via online or go directly to the debt relief company.
Provide necessary documents
Together with the application form, you must provide necessary information. This includes proof of your income and details of your debts.
Pay for insolvency fee
The debt relief company requires you to pay for an insolvency fee. The fee can be paid in full or installment. The DOR application will not be submitted once the insolvency fee is not yet paid.
Assessment of DOR application
The debt relief company will assess your financial situation and evaluate your debt problems. If ever your debt relief order application is approved, then all your debts will be put to hold or ‘moratorium’. During the moratorium, you will not pay your debts within 12 months. Banks and creditors can still charge you with respective interests, but it will be null unless your DRO is canceled.