Which Debts Can Benefit From Debt Settlement Relief?

Which Debts Can Benefit From Debt Settlement Relief?

Debt is rampant in American households and for many, it can be a cyclical way of life. But it doesn’t have to be that way. Some of the most common types of debt can also come with either debt relief or debt settlement options that can give you a fresh start and set you on the path to financial freedom.

In this article, we dissect and review the drawbacks of the six types of debt for which you can seek debt settlement relief and possible resolution. 

1. High-interest rate installment loans

An installment loan is essentially a loan that combines your principal amount owed with your interest rate. In these arrangements, your creditor will require you to pay the loan back in equal amounts over an established period.

Common types of installment loans are mortgages, car loans, student loans, and personal loans. Consumers may sometimes sign on to these loans when they are struggling to meet certain financial obligations and in effect commit themselves to debt with aggressive interest rates that can work against their financial goals. 

2. Credit card debt

In the U.S., credit card debt is rising at its fastest rate in more than 20 years. According to the folks at Bankrate, “not since the 1980’s has the Fed raised rates 3.75 percentage points in a single year.” While Americans paid down billions of dollars in credit card debt during the pandemic, with the recent rise of expenses and interest rates that debt is quickly ticking back up.

If you continually carry a balance on your credit card, you can accrue interest quickly. With rates averaging higher than they have in the last 14 years, that debt can balloon and bring a volatile consumer to a crippling halt. While it is best to pay down the balance each month before interest has a chance to accrue, once you’ve begun to accrue debt, it can be difficult to extricate yourself. Fortunately, options like credit card consolidation can help you dig yourself out of debt if the balance becomes unmanageable.

3. Unsecured personal lines of credit

A personal line of credit is a bank loan in a specific amount, usable for any purpose, and on an as-needed basis. A line of credit is typically unsecured, which means that you will not have to offer any of your personal property as collateral. However, you will need a strong credit score-typically at or above 700- to obtain one. They can also tend to carry higher interest rates, sometimes more than 15%. 

4. Medical collection accounts

If you fall behind on paying your medical bills, your provider will send your account to collections. Typically, this will involve a third-party collections company, who will then report the delinquency to your credit agency. This, of course, may tarnish your credit report for up to seven years from the date of your delinquency. Not to mention, collection agencies, though federally regulated and held to stringent standards, can be extremely difficult. They may call often, and at times, may employ harassing or coercive means to compel you to pay. It’s best to pay your bill before your provider sends it to collections but if a collection agency has already been engaged, make sure you understand your rights to avoid being subjected to overly aggressive measures. 

5. Deficiency balances on auto loans

Delinquency on your auto loans can carry serious consequences. A delinquency balance is an outstanding balance remaining on a car loan after you’ve fallen short on your payments and/or your creditor repossesses your vehicles. Typically, the remaining balance owed will be unsecured.

States set different regulations regarding when deficiency balances are due, as well as how much creditors can collect. As such, it is important to check your state’s laws or better yet, engage an attorney to help if you are facing a claim for a deficient balance. 

6. Payday loans

Payday lenders may offer you a cash advance on your paycheck if financial hardship has made it difficult for you to meet your monthly bills. To qualify for a payday loan, you simply need a regular paycheck and a checking account.

This type of loan can help you make it through a few weeks of bills until you receive your paycheck, but there is significant downside to this type of debt: You cannot repay your payday loan over time. The balance is due in full, in one lump sum. As such, you will need to ensure you can afford to either repay or renew the loan. 

Take caution, if you simply renew your loan, you can fall into a dangerous cycle of continually building up debt and accruing additional fees. If you take this route, it is best to ensure you can pay it off with your monthly paycheck, while still covering your essential bills. 

Managing your debt

If your debt falls into one of these categories, you’re in luck: You have options! Regardless, it’s important to find a reputable debt consolidation program to help you navigate this process if you’re feeling overwhelmed or find your debt becoming unmanageable. Working your way to your financial goals can not only bring your overall debt down but can bring about financial resolutions that can make your life easier.