How to Determine the Right Debt Relief Option for You

Debt is easy to come by these days.

It can come in the form of a car, education, home or living beyond your means. And it can pile on if you pair any of those large sources of debt with a low income, bad budgeting, gambling, illness, no savings, divorce or depending on credit cards.

And while it’s easy to come by, figuring out how to get out of debt isn’t. Keep reading to learn about some common types of debt relief and how they can help you reduce your debt.

Breaking down the types of debt relief

Debt consolidation: Like the name implies, debt consolidation involves taking multiple credit cards and loans and combining them into one. You can do this on your own through a bank or credit card, and many financial institutions even have loans designated for debt consolidation. It doesn’t get rid of your debt but can help you pay off your debt sooner in two primary ways: a lower rate (meaning lower payments and amount of interest you’ll pay over the life of the loan) and one loan payment to remember. Be sure to review any debt consolidation loan before signing to identify any additional fees, understand extended repayment terms (meaning you’ll be in debt for longer) and ask if the interest rate is locked in for the duration of the loan (versus an introductory or variable rate loan). Not sure if debt consolidation is right for you? Schedule an appointment to meet with a Verve team member to discuss options.
Debt Management plan: Offered through a variety of companies and nonprofit organizations, in a debt management plan, the organization you work with becomes the payer on your debts. Typically, that means you make one monthly payment to the organization you are working with and they put the money into an account that they use to pay each of your loan and credit card bills. While this means you will no longer have to worry about missing your payment dates, it could mean paying MORE instead of less per month, as you’ll have your regular credit card and loan payments as well as a monthly fee from the organization offering the debt management plan.
Financial Coaching: Verve’s certified financial coaches are ready to help you set goals, develop a basic budget, manage financial hardships, improve credit scores and save for the future. You will meet one-on-one with Verve’s financial coaches for personalized help with your finances. Financial coaches don’t make payments on your behalf, but instead, help you identify problem areas through budgeting and explain your options for debt consolidation, as well as share ideas for improving your credit score.
Debt Settlement: In debt settlement, your lender agrees to accept a lump sum payment that is less than the full amount you owe. It is a legal agreement and can be an alternative to bankruptcy. Typically, debt settlement occurs between a debt collector and the debtor (you) or a debt settlement agency. Keep in mind that trying to negotiate a debt settlement on your own can be challenging—debt collectors can be intimidating and may not budge from the full amount. The process can take months for you to save up the amount you promised to pay in full (while interest and late fees continue to grow your balance due). Debt settlement also shows as a negative mark on your credit report and your credit score can take a major hit. A debt settlement may have tax implications, so be sure to talk to a tax professional to plan accordingly.
Bankruptcy: Bankruptcy is a legal proceeding handled in federal courts and usually completed with the assistance of a licensed attorney who specializes in bankruptcy. There are different bankruptcy options, so speaking directly with an attorney may be helpful to obtain advice on whether bankruptcy is the right option for you. Filing bankruptcy will reflect on your credit report for years and may limit your options for obtaining future financing. It is usually a last resort to resolving ongoing challenges with debt.