There are many frequently asked questions as far as debt relief and debt management are concerned. Instead of scattering this information throughout a variety of articles, we have decided that it would be beneficial to keep the bulk of it in a single place: our debt relief FAQ section.
It is important to review the frequently asked questions involving debt relief because it is filled with quality information. You might just find what you are looking for without having to ask the question yourself.
The answers to the frequently asked questions in debt relief are compiled by experts. The advice and information that they offer is second to none. Reading up on debt relief FAQs is a quick and easy way to gain a thorough understanding of the subject. It can be a very beneficial way to gain a basic sense of what is going on before delving into the topic deeper.
How do I know if I am in debt?
Ask yourself the following questions to determine if you are in debt:
- Am I unable to meet minimum payments on my bills?
- Do my expenses exceed my income?
- Do I find myself falling behind on my monthly payments?
- Have I surpassed my credit limit?
- Have I lost track of my payments?
- Am I considering filing for bankruptcy?
If you answered “yes” to any of the previous questions, you are most likely in need of debt relief help.
How can I get out of debt?
There are a number of options open to help people who are struggling with debt. The following programs exist to help people pay off their debts.
- Debt Settlement
- Debt Consolidation
- Debt Management Plan
How long will it take to get out of debt?
This depends on what method you choose. Typically it will take you several years to pay off your debts. If you seek help from a credit counseling agency, a counselor can help you figure out a plan that will help you pay off your debts in the quickest possible fashion.
How can I pay off my debts? Will I be forced to take out another loan?
If you are already in debt, it is an extremely bad idea to take out another loan to pay it off, as you may find yourself back in the same situation when it comes time to pay off your loan to the loaner company. It is best to pay off your debt through settlement, consolidation, or a management plan that takes into account a realistic appraisal of your assets: the money you already have, the money you are currently in a position to earn, and the money you are likely to make in the near future.
The one exception to this rule is a debt consolidation loan. A debt consolidation is a loan with low interest rates that is designed to help cover your consolidated debt, and is decided upon typically with the help of a debt management company.
Who can help me with my debt?
A credit counseling agency can provide you with a free counseling session to assess your debt situation. Credit counselors can advise you on budgeting and financial planning and can negotiate a debt settlement or debt management plan with your creditor. Beware of scams, and make sure that your agency is licensed by the state and will take good care of the confidential financial and identification information you will have to provide them with. However, you can also negotiate with your creditors yourself.
What is a DMP?
A DMP, or Debt Management Plan, is a debt relief method that involves negotiating with your creditors to devise a long-term plan over which you will make consistent monthly payments to pay off your debt. A debt management company can review your financial information and negotiate with your creditor to create the best possible payment plan for your income, assets, and debts.
Can a DMP be adjusted?
Yes, if you find that your income is too low to cover your monthly payments, you can negotiate with your creditor company to adjust your debt payments so that you pay off your debt in fewer amounts over a longer period of time. Conversely, if your income increases, you can choose to make greater payments to pay off your debts in less time.
What is Debt Consolidation?
Debt consolidation is a debt relief method that involves combining all your debts into one total sum which you can pay off at a lowered interest rate over a certain period of time. The way this works is that you pay a debt management company a sum which they will then pay the creditor. The company will help negotiate a debt consolidation plan with your creditors under which your interest rate will be lowered.
What is Debt Settlement?
Debt settlement is a debt relief method which involves negotiation of your total debt down to a lower amount. Instead of paying your debt off through monthly payments, debt settlement offers you, the debtor, the option to then pay off this decreased total in a lump sum. Sometimes, this lump sum is paid through several smaller payments, but these sorts of cases are rare, and still, these multiple payments differ from the usual monthly payments.
Why should I choose to settle my debt?
Debt settlement is a good option to consider if you are finding yourself regularly falling behind on monthly payments or if you know right away that you will not be able to continue to pay off your debts at your current rate for the next two to three years. By paying a lump sum upfront, you can rest easier knowing that your debt is settled.
Why would a credit card company agree to Debt Settlement?
It might seem counterintuitive for a credit card company to want to agree to lower your overall debt. Wouldn’t they be able to get more money out of you by continuing the vicious cycle of raising interest rates and charging late fees indefinitely?
However, a credit card company knows that it can only hound a debtor so far. If your debt is increasing at a rate that will be impossible for you to financially outrun, you will simply have no money left to make your payments or the accrued fees and be left with two options: either declare bankruptcy or never pay off your debt. Neither of these two options is beneficial to the credit card company, because if you have nothing left to give, this means that they will just not get paid. So, a credit card company might agree to settle your debt for a lower rate, and know that they will ultimately receive at least some payment as opposed to none.
Can debt affect my credit score?
Yes, debt will affect your credit score. If you are falling behind on or failing to make monthly payments, your credit score will plummet. Your credit score will only start to recover once you have either paid off your debt in full or slowly as you make consistent payments on time. If you file for bankruptcy, note that your credit score will be damaged for seven to ten years.
Who qualifies as a debt collector?
A debt collector is someone who is responsible for collecting debt payments from debtors and who is not your creditor, such as an attorney.
What restrictions are debt collectors held to?
Debt collectors are prohibited by law from calling you at your place of employment, and they cannot tell any third party a) that they are a debt collector, and b) that you are in debt. They may not contact you after 9 pm or before 8 am. They can, however, contact you through typical forms of communication, such as phone, email, snail mail, and fax, or in person. There are also various laws stating that a debt collector cannot harass you.
Will my taxes be affected by Debt Settlement?
Under IRS law, your settlement will be considered subject to taxes at the end of the year, as forgiven debt is regarded as taxable income. However, it is possible to file a specific form, known as Form 982, which may exempt you from these taxes in situations of extreme hardship.
Should I just file for bankruptcy?
Bankruptcy should be an absolute last resort. Not only will your credit score be negatively impacted in the long-term, but you may be denied insurance, employment, state licensure, and even apartment tenancy on the basis of your past bankruptcy. Furthermore, you will find yourself unable to take out any kind of credit or loans in future.
Will I lose my home or car?
No, you will not lose your home or car as a result of personal debt. Your home and car count as secured assets, meaning that if you do not keep up with your mortgage or auto loans, your loaner has the right to repossess the item. Credit card debt, personal and medical loans all qualify as unsecured assets.
Will being in debt prevent me from taking out mortgage or credit in future?
While there are some companies that are willing to loan to people in debt, it is still not a good idea to increase your financial obligations while you are in the precarious financial position which your debt has created. It’s best to pay off your debts in full before you make any more financial obligations. And while it will take a few years, once your credit score recovers, companies will be more willing to loan to you again, so it’s important to be good at following through on payments.