Types of Debt Relief

Debt relief is becoming more common across the world. The economy runs largely on the process of consumerism: citizens purchase goods and services furnished by producers and service providers. More recently, customers have become more involved in the consumer culture by utilizing credit. The result has been an increase in the need for debt relief for those in overwhelming debt.

Consolidation

Consolidation is the most common form of debt relief. Many lenders offer consolidation loans. These loans aggregate loans with high payments and interest rates into a new loan. The result is a loan that is far easier to repay. Consolidation loans can be used for most types of credit, but are most common when consumers have vast amounts of credit card debt.

Mortgages

For consumers with real estate, obtaining a mortgage to pay off outstanding debts can be a viable solution. The only problem with having a mortgage is that the individual is putting his or her home at risk to solve debt problems. The benefit is that mortgages often offer the lowest rates on loans--since they are collateral loans (thus, less of a risk for lenders), lenders are willing to offer better rates and fees than on unsecured loans.

Credit Counseling

Credit counseling is the process by which a consumer works with a credit counselor to reduce debts and payments through consolidation, settlement, and forgiveness. Normally this process is only recommended for those who cannot obtain a lower-interest consolidation loan. The downside to credit counseling is that it negatively affects credit. The upside is reducing debt without going through bankruptcy.

Bankruptcy

Bankruptcy is the last resort in debt relief. It is a process in which borrowers work with the court system to eliminate some debts completely and restructure others. Bankruptcy places a stain on a borrower's credit report for at least seven years, so this should be the absolute last resort for debt relief. However, for consumers with no other options, bankruptcy can provide peace of mind.

Warning

With the increased need for debt relief, there have been attempts by dishonest and unethical lenders to take advantage of vulnerable borrowers. Before proceeding with any type of debt relief program, it's best to get recommendations, research the company's customer service record, and check with the Better Business Bureau (see Resources) to make sure the company does not have a long history of dissatisfied customers.