Debt Relief vs Debt Restructuring
It seems as though there are more and more ways to handle debt these days. The surge of debt-oriented products and services is the result of the extreme lengths that people have had to go to in order to get by after being hit with a series or economic hardships. However, everyone handled this situation differently. Therefore, each case of debt is unique, and there’s no one solution that works best for everyone. As a result, it’s vital that you find the debt solution that works best for your specific case.
Two of the most popular strategies for dealing with debt are debt relief and debt restructuring. There’s some confusion regarding these approaches, and it’s important to pick the right debt product for your specific situation. Therefore, we’ve put together this guide to explain debt relief and debt restructuring, and to help you determine which one is best for you.
What is Debt Relief?
Debt relief is an incredibly broad subject that includes different approaches to handling outstanding debt. Many local, regional, and national companies, such as National Debt Relief and Freedom Debt Relief, have gained prominence lately by offering debt relief products to consumers who are having a hard time paying their bills. Therefore, it’s important to get a handle on exactly what debt relief involves before you sign up for services.
Debt relief can take many forms, but the most common tactic used by debt relief companies is known as debt settlement. Debt settlement is the process of offering your creditors and lenders one lump sum payment in exchange for forgiving the rest of your debts. Debt relief companies use their skills and experience at handling debt negotiations to work out a settlement that is as advantageous to consumers and borrowers as possible.
Debt settlement can be an excellent option for individuals who aren’t able to pay their bills and have debt piling up. In debt settlement, the consumer, or an agency acting on their behalf, approaches their creditors and negotiates a payment for less than the debt they owe. There are some important advantages and disadvantages for debt settlement that consumers should be aware of.
Advantages of Debt Settlement
Debt settlement lets you pay off your debts for less than you owe. Therefore, it can save consumers a tremendous amount of money. Additionally, once the debt settlement process is complete, you’ll no longer owe any of the creditors that you settled with. This protects you from collection calls and other proceedings to get you to pay your debt.
Disadvantages of Debt Settlement
There are several important disadvantages when it comes to debt settlement as a form of debt relief. First, debt settlement is a private transaction between a business an individual. Companies are not under any legal obligation to settle your debt.
Second, debt settlement only works if you are already behind on your bills. Companies are in the business of making money, so they’re not going to be interested in settling debts if you’re already making your regular payments on time.
Additionally, debt settlement can cause a huge negative hit to your credit score. While you won’t be in debt anymore, your credit history will show that the debt was settled for less than owed. As a result, other lenders and creditors will be hesitant to extend you offers in the future.
Finally, there are a series of hoops you need to jump through to make debt settlement work. You need to have a large enough payment that your creditors will be willing to take the payment in exchange for forgiving your debt, but that payment has to be in a form that is only usable for debt settlement. Otherwise, the companies would rather you just pay your regular bill on time.
What is Debt Restructuring?
Debt restructuring is a method of dealing with debt that can take a few different forms. These include negotiating a new rate and payment schedule with your creditors, consolidating some or all of your debt with a consolidation loan, or using special credit cards or other tools to move your debt around to make it more manageable. Use a debt consolidation calculator to see if this is a good option.
The biggest advantage of debt restructuring is that you don’t have to be behind on your bills to achieve it. In fact, it usually works better if you are making your payments on time, as that will show the lenders and creditors who might restructure your debt that you can be trusted to pay your bills.
Debt restructuring usually has two goals, lowering the interest you pay on your debt, and simplifying the process of repaying your obligations. Consolidation loans and special balance transfer credit cards can reduce the amount of interest you’re paying. Moreover, these products can take debt from multiple sources and put it on one bill. This makes it easy to track your debt and reduces the number of due dates that you need to manage.
Debt restructuring doesn’t generally relieve you of any debt, it just makes the debt that you have cheaper and easier to track. Therefore, it’s a good option for consumers who are making their payments, but are struggling to do so.
Debt Relief vs Debt Restructuring: Which is Better?
The best way to determine if debt relief or debt restructuring is best for you is to look at how you’re doing on your bills. If you’re having problems making on-time payments and your credit score has already taken severe damage, then you’re best off with debt relief options. Debt relief is the best choice in this situation because the downsides you get from debt relief don’t have as much of an impact in this situation.
Debt restructuring is the best choice if you’re paying your bills, but you’re having a hard time doing so. Debt restructuring doesn’t have the same drawbacks as debt relief, and so your credit score and financial status won’t be impacted like they would be if you used debt relief as your first option. Moreover, debt restructuring services are usually easier and faster to obtain, so you can get help much quicker.
Use the information in this guide to make a determination about the best way to handle your debt. Also use a debt calculator to get a better idea of how long it will take to pay down debt vs getting debt relief. For some, debt relief will be the best option, but others will benefit more from debt restructuring. Make sure you pick the solution that works best for your specific case.
Carl has years of experience helping people tackle debt. As a Senior Financial Advisor, he knows the ins and outs of debt consolidation and debt management. He holds a Masters Degree in Finance and according to him, not all debt problems are the same and that’s why it’s important to take a look at the different options available for your situation.