If you’re waist-deep in debt, you’re undoubtedly feeling overwhelmed or possibly even fearful about your financial future. But while debt can be scary, thankfully, you have options.
Debt is rampant in American households and for many, it’s a way of life. People often accept it and resign themselves to a lifetime of battling it. But it doesn’t have to be that way. Some of the most common types of debt 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 will review the six types of debt for which you can seek debt settlement relief, explaining what they are and some caveats about each type.
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 timeframe.
Common types of installment loans are mortgages, car loans, student loans, and personal loans. Consumers may take on these loans when they are struggling to meet certain financial demands, however, be careful: Some of these loans may carry interest rates that soar above 100%.
Credit Card Debt
In the U.S., the number of households crippled by credit card debt recently soared to its highest level in nearly seven years. Credit card debt is among the most dangerous types of debt, as it typically carries extremely high-interest rates – in some cases, up to 29.99%.
If you continually carry a balance on your credit card, you can accrue interest quickly – and it can become crippling fast. And while it is best to pay down the balance each month before interest has a chance to accrue, once you’ve already started to rack up 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.
Unsecured Personal Lines of Credit
A personal line of credit is a bank loan in a specific amount (similar to a credit card limit) that you can use 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 – in order to obtain one. They also carry high interest rates, sometimes in excess of 15%.
Medical Collection Accounts
When 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, impacts your credit – in fact, it 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 when it comes to dealing with consumers, can be extremely difficult. They call often, and at times, may employ illegal or coercive means to compel you to pay. It’s best to pay your bill before your provider sends it to collections but once the collections agency has already been engaged, make sure you understand your rights to avoid subjecting yourself to coercive or overly aggressive measures.
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 your creditor repossesses your vehicle. Typically, the remaining balance owed will be unsecured.
States set different laws 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, to engage an attorney to help you if you are facing a claim for a deficiency balance.
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 a significant downside to this type of debt: You cannot repay your payday loan over time. The balance will be 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, though: If you simply renew your loan, you can fall into a dangerous cycle of continually piling up debt and accruing the fees necessary to secure one of these loans. If you take one on, 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 by your debt.