Financial debt is like an infection. The longer you leave it unattended the worse it gets. The longer you wait to resolve debt, the harder it is to kill. Sometimes "doing the best you can" just gives the debt more time to grow. When you take all you can out of each paycheck and are able to pay only portions of the debt, the interest and late fees accumulate and the debt gets more and more unmanageable. When you can't treat an infection on your own, you have to seek the services of a doctor. Sometimes you have to do the same with debt. Here we'll look at a few of the best methods of debt relief.
Debt Counseling/Management
If the debt hasn't grown terribly out of control, sometimes this method works best. A professional debt counselor can negotiate with creditors to set a fixed interest rate. The counselor also works with the debtor to arrange a payment schedule. This way the debtor can manage to make regular payments and eventually eliminate the debt.
Debt Settlement
When the debt is too big for debt counseling and management, debt settlement often offers a solution. Professional debt negotiators work with the creditors to get the debt reduced. The creditors have an incentive to work with the negotiator because if the debtor (the person in debt) is forced to declare bankruptcy, the creditor gets nothing. By working with the negotiator and the debtor, the creditor can be assured of getting at least partial repayment of the debt and perhaps even the majority of the balance.
Debt Consolidation
When a debtor has several or even many different debts, debt consolidation can offer a solution. The debtor can borrow the equivalent of the total amount for all outstanding debts from a lending institution. Once the individual debts are paid off with the funds from the loan, the debtor is responsible for only a single loan repayment. And the interest rate for this loan is usually fixed unlike debts that have variable interest rates, such as credit cards.
IRS Abatement of Tax Penalties
Getting behind in taxes is an all too common symptom of debt. On top of the amount of back taxes there are penalty fees. The debtor can request an abatement of penalties, which removes a portion of the penalty amounts from the total amount of back taxes owed.
Bankruptcy
Bankruptcy is usually the last resort in debt relief. Bankruptcy is a legal declaration that a debtor is unable to meet financial obligations. While being bankrupt is better than having debt that is constantly snowballing, bankruptcy has the negative effect of setting a person back to zero financially. Worse yet, bankruptcy stays on a debtor's record for a period of years and for the most part eliminates any chance of credit. While for some debtors bankruptcy is the only option, every other alternative should be investigated first.
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