Relief Debt - Trading One Debt For Another
There's no way out of debt completely. Of course, there are consumers who cut up their credit cards, own their homes free and clear, and don't have any outstanding debt. Today, that is a very rare situation. The economic crisis seen in the United States in recent years has created mountains of debts for the average person, and many of them have sought relief through various resolution programs.
In several types of debt resolution, a certain amount of relief debt is incurred. When a type of program is undertaken that requires a loan to pay off bills, it is known as relief debt. It is essentially trading one kind of debt for another. Relief debt replaces debt that is owed to many creditors, and rolls it into one tidy sum to one creditor. This is usually a bank or another financial institution, who carries the note.
Through negotiation, creditors agree to settle for lesser principal amounts and decreased interest rates in lieu of being paid off. To do this, the consumer takes out a secured loan against hard collateral such as a home and an automobile. For the person who still has a mortgage, this means there's then a second mortgage against his home, but incurring relief debt is also a way to satisfy creditors and start a path to financial recovery.
Since relief debt consists of a loan, the consumer, who asks questions and does their homework stands the best chance of making a sensible decision. The most basic question should be whether the loan will have to be secured or whether it can be unsecured. If the loan is secured, count on being a second mortgage on the home if the amount is very large at all. Secondly, if the consumer has a high debt to income ratio, there is a good possibility of finding a loan hard to even get. The consumer needs to consider how much the monthly payment will be, the total cost including interest paid over the years, and how such a loan and repayment program will effect their credit rating.
There are a number of credit resolution programs other than taking out a loan. Debt management and debt relief are two of them, where loans are not require. The end result is the same - bills get paid off - but the approaches are different. By working with a reputable debt relief company, it may be possible to take another approach and avoid a loan and subsequent relief debt. Most consumers prefer to look at all of these options in lieu of declaring bankruptcy, and it is a very wise idea.
by: Vicki Hall
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