In tough economic times, a grant from the government to help you get out of debt would be a breath of fresh air. However, such grants, in the sense of free money, really don't exist. According to No Debt Today's website, the idea of federal debt reduction grants is a rumor spread by companies that charge to provide you with information on these so-called grants that turn out to be useless information. However, there are several strategies and programs available that will help you reduce and manage personal debt.
Tax Breaks
Several government tax breaks offer assistance in helping you to reduce debt or keep from obtaining more debt. For example, if you settle a debt by paying less than the amount owed, the law requires you to report the difference as income on your taxes. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows most taxpayers to exclude the "income" received from a cancellation of debt (through foreclosure or settlement) on their principal place of residence.
Debt Consolidation
Another option is to consolidate your debts, giving them all the same interest rate and lowering your total monthly payments while paying the debts off more quickly. There are several companies that offer this service, but, according to The Wall Street Journal, these companies are becoming less reliable as consumers report more and more scams to the Federal Trade Commission. The Federal Trade Commission recommends consolidating your debts through a second mortgage or home equity line of credit and being very wary of companies that offer debt negotiation programs.
Debt Management Plans
The Federal Trade Commission also recommends seeking credit counseling if you lack the discipline to stay on a strict budget, so that a counselor can help you stay on track. The FTC states that the best counseling services are nonprofit organizations that offer in-person counseling. If a credit counselor determines that your problems are due to too much debt or being unable to pay your debt, then a Debt Management Program (DMP) may be the next option. With a DMP, you deposit a certain amount of funds with an accredited debt counseling service each month, and the service distributes the funds to your unsecured debts.
Bankruptcy
The Federal Trade Commission states, "Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching." However, the purpose of bankruptcy is to give individuals who are in over their heads with debt the means to use federal law to protect some assets, such as your home and personal belongings, while paying a portion of or receiving a discharge from debts owed.
Alternative Debt Reduction Options
While there isn't really free money available from the government in the form of debt reduction grants, there are other government programs that can help you to save money on other needs, leaving more funds available for you to put toward debt payments. A quick search of the benefits available on the GovBenefits.gov website listed in the resources section reveals programs available through state and federal governments for living assistance, loan repayments, career development assistance, energy assistance, health care and other categories. Simply complete the questionnaire available on the GovBenefits website to find assistance programs for which you might qualify.
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