Getting out of debt can be challenging. Especially during a global pandemic that has deeply affected the economy and left many unemployed.
Despite the improvement in the labor market in July, after a rise in unemployment in April 2020, there are still many people who have been affected by the COVID-19 pandemic. An estimate of 6.5 million Americans was jobless for 15 to 26 weeks this year.
This situation has heavily impacted personal finances. According to a survey conducted by Quicken Inc in April 2020, 40% of people said COVID-19 will be just as bad or worse than the 2008 recession for them and their families.
The challenging global situation has led many financial institutions, credit card companies, and lenders to come up with debt relief programs to assist those struggling to pay their bills.
What is debt relief?
Debt relief is a strategy aimed to deal with personal debt. It usually involves working with creditors to come up with a plan for repaying your debt in a way that satisfies them and makes it more manageable for you. Some steps of a debt relief strategy include the partial forgiveness of some fees, negotiating a lower interest rate, or even filing for bankruptcy.
Debt relief is a strategy that individuals can come up with on their own or by hiring an expert that will take care of the negotiation.
What is a debt relief program?
There are several companies offering different types of debt relief programs. These programs usually involve a credit counselor negotiating with creditors on behalf of the consumer to come up with a plan for paying off the debt.
Different types of debt relief strategies can have a bigger or lower impact on your credit score. Therefore, it is important to do your research and choose wisely. Here are the main debt relief strategies:
Debt settlement: This strategy focuses on lowering your overall debt and should be the last resort. Because you will be asked to discontinue payments as the debt settlement company negotiates with creditors, this strategy can heavily impact your credit score.
Debt management: A credit counselor will evaluate your situation and come up with a plan of how much to pay each month. Your counselor will keep you accountable and you will pay a small monthly fee for the service.
Debt consolidation: This method consists of consolidating all your debts under one new loan. This will allow you to save money on interest rates. For credit card debt, this strategy consists of a balance transfer, meaning transferring your different credit card debt into one new card.
Bankruptcy: This is the last resort and involves a complicated process of going to court and usually hiring an attorney. This method will also have a big impact on your credit score for a long time.
Institutions offering debt-relief options due to COVID-19
The difficult situation that many people are facing due to the COVID-19 situation has led many institutions to come up with their own options for debt relief. The following institutions have come up with some kind of plan to help consumers:
Financial institutions: Banks and Credit Card Issuers, Mortgage and Personal Loan Lenders, Student Loans. Some of these institutions offer options to skip payments, cancel some late fees, and lower interest rates.
Service Providers: Cable, Phone, and Internet providers offer payment relief, waive some fees, and extend certain services.
Auto Lenders: Some lenders offer options such as lease extensions to help their customers.
Auto Insurance: As people are driving less, some insurers have come up with solutions such as partial refunds to help customers in need.
Government Resources: Governments have started implementing new policies and providing guidance for consumers to get through the current situation.
Depending on your situation, check with your financial institutions or service provider to learn about their options for helping customers.