Definition of Debt Relief

The definition of debt relief implies the forgiveness of all debt; however, this is not always the case. According to BusinessDictionary.com, debt relief includes the reduction, refinancing, reorganization, rescheduling or cancellation of a debt. When seeking assistance with financial burdens, consumers find it necessary to rely on creditors, banks, courts, counselors and more.

Reduction

Reduction is a form of debt relief that results in a creditor agreeing to reduce the overall sum of money or interest rates owed by a person or entity. While a change in interest rates may be considered a form of reorganization or refinancing, the overall payment results in a reduction. A reduction of debt may also occur in the form of a Chapter 13 bankruptcy. At the Chapter 13 hearing, the trustee negotiates and manages a payback amount to creditors using, as the determining factor, the filer's income and assets.

Refinancing

A refinancing is most common by application. Banks often use this form of debt relief, relying on collateral, to secure their newly negotiated investment. Relief is granted in the form of adjusted interest rates and negotiated terms using the value of an asset, such as a house, for security. A borrower will often use a refinancing option to obtain money against property that has equity or a higher value than the original loan. This money is then used to pay off other incurred debts or perhaps improve the condition of the original investment.

Reorganization

Debt reorganization is the process of taking money owed and establishing new, more manageable terms with creditors. This is best accomplished with credit counseling or debt consolidation services where hired negotiators, on behalf of borrowers, contact and manage payments to creditors. These services are often free but at times may require a percentage payment or minimal monthly fee.

Rescheduling

Debt resheduling is an option that lenders use when working with a delinquent borrower. Rather than begin a repossession or foreclosure process, creditors will work with those who have fallen behind in their payments by taking the missed payments, plus interest, and adding them to the end of an outstanding loan. Payments may be renegotiated, but they often remain the same.

Cancellation

Unless a consumer files a Chapter 7 bankruptcy, there is virtually never a cancellation of debt offered. Cancellations most often occur between individuals but rarely between creditor and consumer. A Chapter 7 cancels most all debts owed by a consumer and is one of the most effective forms of debt relief; however, taxes and government loans are not forgiven, and credit ratings will suffer from five to seven years.

Credit Rating

Most forms of debt relief will have an impact on your credit rating. Monthly monitoring of your rating will ensure that information remains accurate and that any negotiated arrangements are reflected. Most banks offer these services for a minimal fee. A credit monitoring service is well worth the service fee.