Types of Debt That Qualify for Debt Relief

You’re starting to feel like you might have to file bankruptcy, but hold on; there’s a financial strategy that can help you avoid the solution of last resort. But are your debts eligible for such a program? Well, let’s see. Here are the types of debt that qualify for debt relief – and more.

What is Debt Relief?

With debt relief, you pay a company to approach each of your creditors with the prospect of letting you pay a portion of what you owe to “settle” your debt with a one-time payment in full. Creditors usually go along because – remember “bankruptcy”? They know if you file that, they’re pretty much out of luck, in terms of repayment. Plus, this way they can get paid sooner rather than later, or not at all.

How Does Debt Relief Work?

Following an initial consultation, during which your situation is evaluated and a repayment plan is crafted, you’ll be asked to put money monthly into a savings-like account that you control. Once you’ve saved enough – that depends on your income and debt load – your company’s negotiators will go to your creditors on your behalf and use the account as leverage. After each settlement is reached and approved by you, the payment will come from your account.

Won’t That Hurt My Credit?

Your scores will temporarily go down due to the debt relief process, which calls for you to wait for settlements before paying. But once you’re done with the program, your debts are cleared and you begin to rebuild your credit, your scores will naturally increase. And this is a good time to remind you that your credit is not great now anyway. Right?

How Long Does Debt Relief Take?

It depends on the company and the amount of debt you have, but you can count on around two to four years – a blink of the eye compared to the likely decades it would take you to clear your debts by making minimum payments. And chances are, it took you a while to get in this mess.

How Much Does Debt Relief Cost?

Costs vary among debt relief programs – Freedom Debt Relief can be as low as 15%, for example — but they’ll usually be between 18% to 25% of enrolled or settled debt. It mostly depends on the size of your debt and the state in which you live. What you don’t want is a company that charges you up front – before a single debt is settled, and maybe before they’ve even looked at your case. This is likely a scam company. Stay away.

What Types of Debt Qualify for Debt Relief?

With debt relief, you’ll typically be restricted to “unsecured” debt, that is, debt that isn’t attached to collateral such as a house or car. So, no mortgages, federal student loan debt, vehicle debt, nothing like that. That’s secured debt and is a whole other animal.

Credit card delinquencies are very common in debt relief, which also usually works with medical debt, personal loan debt, some types of business debt, and some “private” student loan debt.

You’ll also need to be markedly behind in your enrolled debt. No creditor will work with you if it thinks you can pay the whole thing. Also, most companies have a minimum amount of debt you can have, dollar-wise. You can expect around $7,500.

Now that you know what debt relief is, and what types of debt qualify, you know whether you’re a good debt relief candidate. If you are, you’ve picked a strategy that has helped scores of individuals — just like you.