In common parlance, debt relief can be defined as forgiveness of debt that has piled up. This concept is applicable for almost any economic entity, from nations to multinational corporations and from business firms to individuals. In the following article, a brief elaboration of the concept of debt relief for a short time period, from the point of view of an individual debtor, has been given.
What is Debt Relief?
The concept of debt relief is a simple one. There are many consumers who have a considerable number of debts piled up in front of them. Now, debt is also charged with a certain amount of interest that increases with every progressing month. During the economic recession of 2007 to 2009, many such scenarios were observed. One of the ways to get out of such situations is to opt for a debt relief proceeding.
The process of debt relief is simple. Your attorney, establishes a debt to income ratio and conveys it to all your creditors/lenders (people whom you need to repay). The debt to income ratio is basically calculated by eliminating the needed household expenses from your monthly income. Then the remainder is divided into parts according to a pro-rata allotment. In this allotment, payments are made to creditors, in a ratio which is established in accordance with the amounts owed to each creditor.
This allotment is a simple one and is done according to the terms and conditions of the credit facilities and loans that you have availed. The simple principle that is followed is that the lender who has the highest unpaid amount receives the largest proportion of the borrower's income. Some amount of the debt is also forgiven in this process. There are also cases, where the interest rate is decreased or is totally eliminated.
Many of my readers have often asked me, that how does the lender sacrifice some parts of the unpaid debt, or even the interest of that loan? The answer is simple. The person who opts for a debt relief is practically drowning in debt. Such a situation has two possible outcomes. Either the debtor will default the loan or he may file for a bankruptcy.
Both these situations are equally risky, and it is highly probable that the lender will end up losing a considerable amount of money, irrespective of the fact that the loans are secured loans or unsecured loans. Thus instead of undertaking the risk of losing all the money, lenders prefer to gain some amount of the loan by relieving the borrower of some amount of his debt. The forgiven money is also usually a part of interest and fees, fines and charges. Thus, in theory, the lender does no lose much money.
Emergency Debt Relief
This kind of debt relief is not a different up-gradation of normal debt relief procedures, it's almost one and the same. The only 'different' factor is that this debt relief is availed in a short time, say a couple of days. You may also in fact avail some relief options in a few hour's time. There are several options which can be used to wipe off the debt as quickly as possible. There are a few age-old concepts that can be used as debt relief options.
- Debt consolidation is one great option that you can use for the purpose of consolidating all debts and paying of the new consolidation loan to one lender. The mechanism is simple. The principal amount of the debt consolidation is basically a total of all the debts that the borrower has to repay. The amount of the loan is thus repaid by the consolidation loan. Then all the borrower has to do is repay the consolidation loan. The consolidation loan is basically a loan that has a long time period and low rate of interest. Due to this, the installments are very easy to pay. This loan is probably the best emergency debt help, as the loan gets approved in a short period of time, in some cases, even a few hours. The creditors who receive immediate and full payments, in fact forgive small parts of debts such as the fees, excessive charges, obnoxious interests.
- Governments, state and Federal, have also started some great debt consolidation loans programs which contribute in the relief, such as consolidation for, Federal Family Education Loan (FFEL) and FFEL Parent PLUS loans, for people who are suffering from heavy debt due to student loans and educational loans.
- Debt negotiation is an effective process with the help of which people can negotiate the rate of interest and installments, with the lender of the loan. This process can also be done with the help of a debt negotiation agency, which represents the borrower, or even your lawyer. In such a case, the rate of interest or the installments are usually changed. A similar process that can be followed is debt settlement. The debt settlement is basically a process with the help of which the total amount that has to be paid is substantially reduced. The reduction in the amount of debt, basically means that rate of interest is reduced and the monthly installments are made much more affordable.
- In extreme cases of debt and in cases where the situation seems right, creditors and lenders also agree for a short sale, that is the collateral such as the house or car is sold off at a price which can be used to pay off the debt. This is actually a good alternative to foreclosure. However, the element of luck and suitable financial conditions plays a rather crucial role in the process.
- Refinance loans and loan modification programs can also be used in order to get rid of debt. The government has taken up initiatives such as, Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP), with a view to help borrowers during economic conditions such as real estate bubbles and economic bubble (which were observed throughout the 2007 - 2009 economic recession). In addition to using such options, people also tend to use some innovative measures such as home equity line of credit (HELOC) or home equity loans, to get access to more credit.
This kind of debt relief can be availed with the help of a number of options. However, it is important that you make the best of the opportunity and plan out your debt repayment. If you look at the positive side of the entire operation, you will notice that it may actually improve your credit ratings and score, as every timely payments add a few points to your credit score. You may also go in for a debt counseling course, in order to plan out your repayment strategy. Think wisely, and act punctually.