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Debt relief: What it is and when should one seek it?

Debt relief: What it is and when should one seek it?

Debt relief: What it is and when should one seek it?
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By CNBCTV18.com Contributor Oct 1, 2022 1:33:25 PM IST (Published)

A debt relief program's main objective is to assist borrowers in paying off their debts in a reasonable amount of time. Hence once the consumer realizes their need for assistance, selecting a debt relief strategy follows.

Borrowing money or taking on debt does not always have to be detrimental. It might be the beginning of a path to financial development and stability. However, some debts do not truly offer any advantages. In a country where consumers have plethora of options to avail credit or debt, from traditional financial institutions to new-age fintechs, carrying a significant debt can be crushing, particularly if it exceeds the borrower's ability to pay it off.

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The general mindset of clearing the minimum due amount can drive up the balances as they keep increasing with interest accumulating over time. However, to safeguard interests of the consumers who get trapped in such debt, there are debt relief programs available. Though it can take many forms, debt relief can help borrowers get out of debt faster and get them closer to financial freedom and a debt-free life.
What is debt relief?
Debt relief refers to the act of readjusting a borrower's existing debts such that they are partially or entirely exempt from having to pay off their creditors. Additionally, it aids in rearranging and consolidating the dispersed loan payments to settle them at a sum acceptable to both the debtor and the creditor.
Debt relief may not always include immediate debt repayment or forgiveness, and straightforward solutions involve agreeing to a few missed payments or a lower interest rate. With a goal of helping people find a practical route to debt elimination, debt relief aids restructure the debt so that the payments are easier to manage.
The need for debt relief
Since 2018, consumers' debt loads have steadily risen, and the epidemic has worsened matters. Parallelly, the advent of new-age and easy to avail credit is driving digital natives’ consumers, millennials and GenZ to the concept of micro-credit and pay later services. It is herein where we need to create awareness about being credit wise and to avoid falling into a debt trap by managing debt properly. And if it increases, avail the debt relief and credit counselling services.
How does debt relief work?
A debt relief program's main objective is to assist borrowers in paying off their debts in a reasonable amount of time. Hence once the consumer realizes their need for assistance, selecting a debt relief strategy follows. Analysing the specifics of their debt – such as how much they owe, the interest rates on loans, and their credit score – consultant can determine the ideal approach and initiate conversation with the creditors.
As each outstanding debt account is paid off, the borrower continues to make monthly deposits into their particular purpose savings account. By reducing spending or selling items they no longer need, borrowers can accelerate the process and get closer to their savings target. Some organizations and debt relief businesses focus on helping clients with more manageable debt problems. They could look over the borrower's debt, offer advice on money management, and bargain with creditors for a new payment plan. They may also be able to work with the borrower to design a repayment schedule that works with their lifestyle.
When to seek debt relief?
There is not a single, universal approach to managing debt. Any person experiencing trouble paying their debts may find debt relief useful. A more intensive programme, such as debt settlement or debt resolution, might be the best choice if the borrower believes they will not be able to pay off their debts within five years, even with strict budgeting, or if the total of your unpaid unsecured debt is greater than half of the gross income. One may consider debt relief if:
• Non-payment of credit card or other loan instalments on schedule
• Although the borrower is not yet behind on payments, they are having trouble making them
• The borrower has tried managing their debt independently, but they have not been able to make progress
• The borrower has thought about declaring bankruptcy
Bottom Line
The borrower has a wide range of possibilities while looking for debt relief. There are many options to explore, including dealing with lenders, qualifying for special programmes, or simply asking a Debt Relief Company to help him navigate their way out of debt. Debt relief may be able to help borrowers who are overburdened by debt see the end of the tunnel. Every situation is unique and knowing what to expect from debt relief and how it might help someone is the key to making the right decision.
This article is authored by Ritesh Srivastava, Founder and CEO at FREED. The views expressed are personal
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