Home Consumer debt What is it and when should you look for it?

What is it and when should you look for it?

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By CNBCTV18.com Contributor IST (Released)

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The main objective of a debt relief program is to help borrowers repay their debts within a reasonable time. Therefore, once the consumer realizes his need for assistance, the choice of a debt relief strategy follows.

Borrowing money or going into debt doesn’t always have to be harmful. It could be the start of a path to development and financial stability. However, some debts don’t really offer benefits. In a country where consumers have a plethora of options for availing themselves of credit or debt, from traditional financial institutions to new-era fintechs, carrying a lot of debt can be overwhelming, especially if it exceeds the borrower’s ability to repay it.

The general mindset of clearing the minimum amount owed can drive up balances as they grow with interest accumulating over time. However, to protect the interests of consumers who are trapped in such debt, there are debt relief programs available. Although it can take many forms, debt relief can help borrowers get out of debt faster and get closer to financial freedom and a debt-free life.

What is Debt Relief?

Debt relief refers to the act of readjusting a borrower’s existing debts so that they are partially or fully exempted from having to repay their creditors. Moreover, it helps in reorganizing and consolidating scattered loan repayments to settle them at a sum acceptable to both debtor and creditor.

Debt relief doesn’t always include immediate repayment or cancellation of debt, and simple solutions include accepting a few missed payments or a lower interest rate. In an effort to help people find a practical path to debt elimination, debt relief aids restructure debt so that payments are more manageable.

The need for debt relief

Since 2018, consumer debt has steadily increased and the epidemic has made matters worse. At the same time, the advent of new era, easy-to-obtain credit is driving consumers, millennials, and Gen Zers toward the concept of micro-credit and pay-after services. This is where we need to raise awareness about credit caution and avoid falling into the debt trap by managing debt properly. And if it goes up, take advantage of debt relief and credit counseling services.

How does debt relief work?

The main objective of a debt relief program is to help borrowers repay their debts within a reasonable time. Therefore, once the consumer realizes his need for assistance, the choice of a debt relief strategy follows. By analyzing the details of their debt – like how much they owe, interest rates on loans, and their credit score – the consultant can determine the ideal approach and start a conversation with creditors.

As each outstanding debt account is paid off, the borrower continues to make monthly deposits into their special purpose savings account. By reducing expenses or selling items they no longer need, borrowers can speed up the process and get closer to their savings goal. Some debt relief organizations and companies focus on helping clients with more manageable debt issues. They could review the borrower’s debt, offer advice on money management, and negotiate a new payment plan with creditors. They may also be able to work with the borrower to design a repayment schedule that suits their lifestyle.

When to seek debt relief?

There is no single, universal approach to managing debt. Anyone having difficulty paying their debts may find debt relief helpful. A more intensive program, such as debt settlement or debt resolution, might be the best choice if the borrower feels they will not be able to repay their debts within five years, even with strict budgeting. , or if your total unpaid unsecured debt is more than half of gross income. Debt relief may be considered if:

• Failure to pay credit card or other loan installments on time

• Although the borrower is not yet in arrears with payments, he is struggling to make them

• The borrower tried to manage his debt independently, but failed to make progress

• The borrower has considered declaring bankruptcy

Conclusion

The borrower has a wide range of options while seeking debt relief. There are many options to explore, including dealing with lenders, qualifying for special programs, or simply asking a debt relief company to help you get out of debt. Debt relief can help borrowers who are over-indebted see the end of the tunnel. Every situation is unique and knowing what to expect from debt relief and how it might help someone is key to making the right decision.

This article is written by Ritesh Srivastava, founder and CEO of FREED. Opinions expressed are personal