The current economic downturn has left a large number of Americans struggling to keep their finances afloat. Many individuals have seen their home equity lines of credit frozen, reduced, suspended, rescinded or else hit with some form of restriction. Personal bankruptcy filings have soared, and even for consumers who have managed to keep a close rein on the state of their finances debt has started to pile up while access to credit has become increasingly restrictive. Recent estimates show that in the US, the average household carries as much as USD 19,000 in debt – in addition to any existing mortgages. Under these circumstances, debt relief has become one of the hottest topics of the day, alongside credit repair and debt consolidation. As time passes and the economic crisis rages on, it is natural for indebted individuals to seek out consumer debt relief programs, look for advice on credit card debt relief and research debt relief grants from the government in order to see which option best suits their financial needs.
What would be a good way to define debt relief? The notion of debt relief was originally coined in the 1990s and was employed to define a range of strategies (debt eradication among them) all seeking to assist heavily indebted third-world countries in fighting off poverty; the term is now widely used, but its level of applicability has grown to encompass actions and strategies that can be applied not only to counties, but also to individuals as well as companies. In its wider sense, debt relief refers to the partial or total forgiveness of debt, undertaken to provide an entity (be it an individual or a corporation) with assistance in repaying the amounts owed to various creditors (banks, credit card companies, etc.). In fact, given the huge popularity credit cards enjoyed over the past decades, credit card debt relief has become one of the main types of debt relief sought out by individuals, brought about by uncontrolled spending and the easy access to credit (which eventually turned out to be one of the main causes of the current credit crunch).
There are a number of approaches to debt relief consumers may chose to undertake, some more radical (such as filing for personal bankruptcy), some perhaps a little less so. One possible strategy involves opting for debt consolidation. This means that an individual who has several outstanding, unsecured loans (credit card balances are also regarded as outstanding loans in this case) takes out a single loan to repay all his existing loans. This may mean turning multiple unsecured loans into a single, large unsecured loan, but usually it means taking out a large secured loan and using any material assets (such as houses or cars) as collateral. This is done via a debt consolidation company, which effectively “buys” the loan from the original creditor, and has the ability to discount it, particularly if the debtor faces bankruptcy. This may be a significant source of debt relief, as the discounted amount of the loan bough by the debt consolidation company is (evidently) smaller than the original amount of the loan – which in turn means that de debtor will have to pay back less money. However, debt consolidation must be carefully considered. If a consumer decides to file for bankruptcy after opting for debt consolidation, debt consolidation may impact the ability of the debtor to discharge his debt load.
Debt relief
Debt consolidation is usually recommended when it comes to credit card debt relief, since credit cards usually come with higher levels of interest rate than unsecured loans granted by banks. Debtors who own property such as a home or car may be granted a lower interest rate via a secured loan using their property as collateral – however, this also puts them at risk of losing their car or home if they fail to repay the consolidated debt.
Bankruptcy is perhaps the most radical means of accessing some form of debt relief, though some regard it as a more effective route to debt discharge than enrollment in some type of consumer debt relief program. US bankruptcy laws provide for two basic types of bankruptcy proceedings, named after the main principle on which they are centered: liquidation procedures are filed under Chapter 7 (and are the most frequently met types of bankruptcies in the US) while rehabilitation procedures are filed under Chapters 11, 12, and 13. A bankruptcy filing under Chapter 7 is called liquidation and involves the partial discharge of an individual’s debt, as well as the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.
However, the law allows individuals who have filed for bankruptcy to have many forms of debt (such as credit card debt) discharged. Among the types of liens which cannot be liquidate are mortgages, accumulated interest, child support, income taxes, property taxes or student loans. Given that a bankruptcy filing usually discharges an individual’s credit card debts, it is in the best interest of credit card companies to assist their clients in repaying debts via traditional means in order to recover at least part of their unsecured funds.
Debt relief
Yet another means of getting debt relief is tapping a debt relief grant. Surprisingly, debt relief grants from the government are an option that is often overlooked, sometimes for a reason as simple as lack of information about such grants. Unlike traditional loans, government grants do not ask for collaterals or security deposits. Also, a government grant does not need to be repaid; it is tax-free and does not accumulate interest. Various grant schemes currently exist, and they aim to provide debt relief for debts accumulated in specific areas such as healthcare, education or for medical expenses. Grants are awarded to individuals who can effectively prove that they cannot repay outstanding debts. Of course, a careful investigation will be made of all debt relief grant applicants to make sure their financial situation is indeed as dire as reported and not simply an excuse to illegally tap government funds. Among the elements which will be looked at by social service officials are an individual’s potential to repay outstanding debts, his credit history and overall financial situation.
Individuals looking for debt relief should be aware of the fact that there are a number of options out there which they can consider in order to improve their financial standing and avoid radical actions such as filing for bankruptcy. However, there is no such thing as a miracle cure for bad debt – just a number of strategies which, if researched and followed carefully, may contribute to lowering debt levels.
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