What is Debt Relief - An Overview
- Debt relief is when a creditor forgives or cancels the money you owe.
- The relief may temporarily give you time to get back on track. Or it may be permanent and include forgiving part of the money you owe.
- You may seek debt relief for credit card debt, medical debt, or student loans.
- Freedom Debt Relief is the leading debt relief company that helps you negotiate and settle your debt.
If you ask yourself what debt relief is, then chances are you are struggling to pay your bills. Anyone can hit a rough spot. The reasons for financial hardship vary, but the most common ones are medical expenses, job loss, or income loss.
If you need clarification on the term debt relief, you have come to the right place. Freedom Debt Relief understands the ins and outs of debt relief and is the nation’s top debt settlement provider. We have helped over 650,000 clients resolve over $15 billion in debt since 2002. Our experience shows us that there are different reasons for financial hardship.
As the name implies, debt relief is a possible solution to your financial troubles. But, since there are a lot of hardships and your problem is unique, you want to make sure that you find the right kind of debt relief.
Debt relief definition - the short version
Debt relief is when a lender or creditor changes the terms of your debt to make it easier for you to cope with your financial and legal obligations. Possible solutions include:
Pushing off payments.
Reducing your interest rate.
Canceling or forgiving part (or all) of the amount you owe.
Ok, what is debt relief?
Yes, it is confusing because debt relief comes in many forms and varies depending on the type of debt that you have.
Here are a few names used when discussing debt relief: debt settlement, debt resolution, and debt negotiation. Debt relief is also closely related to debt forgiveness programs, hardship programs, and bankruptcy.
There are debt relief programs for credit card debt, student loans, tax debt, and medical debt. There are even debt relief programs for countries.
The government agency, Consumer Financial Protection Bureau (CFPB), refers to debt settlement when talking about debt relief. And that is for good reason because when Freedom Debt Relief started its debt settlement program in 2002, it used the term debt relief.
But, in all fairness, debt relief is used in a much broader context. The common thread is that you, the consumer, are getting a break in the amount you pay back to the lender, credit card company, or debt collector. Here are a few examples:
Temporary relief through forbearance or deferment: The creditor lets you stop making payments or make partial payments on your loan for a short period.
Lender or credit card company hardship programs: Your credit card company might offer a program that they call a “hardship program.” Usually, that is another name for a temporary relief program like forbearance or deferment.
Debt modification programs: The lender restructures your debt by lowering your interest rate or adding more years to your repayment period. You get immediate relief when your monthly payment drops. A debt management plan falls into this category. There are also student loan and mortgage modification programs.
Debt forgiveness programs: The creditor reduces the amount of money that you owe. Two forms of debt forgiveness are debt settlement (or debt negotiation) and bankruptcy.
Learn more about debt relief
Freedom Debt Relief understands that debt relief only works if you match your financial situation with the right program. We want to ensure that you know how debt relief works, the different programs, and what kind of debts can be settled.
What is a debt relief program?
A debt relief program is a plan that allows you to restructure your debt. Different types of programs include debt settlement, debt management, or bankruptcy. Even a debt consolidation loan can offer debt relief if it lowers your interest rate and offers a more affordable monthly payment. If you are in financial hardship, debt settlement is one of the most effective debt relief programs.
For more information, read this article about debt relief programs and how they work.
How debt relief works
Debt relief is a simple process to start, although it can be challenging to finish. It is really helpful to have professionals helping you get there.
Debt relief works by getting your creditor to agree to change the terms of your debt. That could mean lowering your payments or even forgiving your debt.
For a simple credit card hardship program, you must convince the credit card company that you can’t afford the payments. They will require a substantial amount of paperwork.
When dealing with a debt settlement company, the process is more complicated. You need to stop making your payments, start building up funds for negotiation, and then negotiate a settlement.
For more information, check the FAQ about “How the FDR program works.”
What are the pros and cons of debt settlement?
Like any debt relief program, debt settlement has its advantages and disadvantages.
Before deciding, consider whether you are in hardship and need relief on your monthly payments.
Avoid the embarrassment of bankruptcy, but get some of your debt forgiven.
Avoid damaging your credit score with a public record. Debt settlement hurts your credit score, but the leading cause is late payments, which are happening or going to happen.
Affordable monthly deposits.
Debt collectors might continue to contact you.
There are fees. Professional debt settlement companies typically charge between 15% and 25% of the enrolled debt. However, you shouldn’t pay any upfront fees.
There is no guarantee that the company can settle the debt. A reputable debt settlement provider will not guarantee to “settle your accounts for pennies on the dollar” or make any similar claim.
For more information, read about debt settlement pros and cons.