It can be difficult to unbury yourself when all your money is servicing debt instead of growing your business.
There are options. Debt relief financing can make it easier to manage your business debt. Other debt relief options, such as debt management or debt settlement, may be available to help you get out.
Each option has its advantages and disadvantages, and the effectiveness of each depends on what type of debt you have. This article will discuss popular debt relief programs to help you choose the right funding option for your company.
What are your options for debt relief?
Get a consolidation loan.
A debt consolidation loan allows you to consolidate multiple debts into one. This loan allows you to consolidate high-interest debts into one low-interest loan.
It’s not always possible to obtain a lower interest rate. Your ability to repay and credit score will determine your debt consolidation loan interest rates. You may be able to consolidate debt if you have poor credit, but it will not lower your debt payments.
Even if your monthly payments are the same, consolidating your debts can help you to stay organized. It would help if you were careful not to take out a consolidation loan that will cause you to make larger monthly payments.
Hire a debt settlement company
A debt settlement company is another popular but risky option for debt relief. You stop making debt payments when you hire a company that settles your debt. Instead, you put money into a separate account managed by a third party. Once you have enough money, the debt settlement firm will start negotiations with your creditors.
The goal of a debt relief company is to convince creditors to accept a lump-sum payment and close your account. Your creditor should be willing to accept partial payment instead of pursuing costly litigation. This is not a guarantee that it will be approved. It is better to pay all creditors.
You’ll be responsible for any late fees, penalties and accrued interest after you stop paying your payments if they refuse to accept the settlement offer. If they accept, your debt can be repaid at a fraction of its original value. Your credit score will still be affected even if they accept.
Start a debt management plan.
A debt management plan (DMP) is a plan you create with a credit counseling agency. The agency usually consults with you to assess your situation and discuss your options. If you agree that a DMP is right for you, the credit counselor will work with your creditors to set up the repayment plan.
The agency will then make monthly payments to you and your creditors. If you agree to pay through DMP, your creditors might waive fees or lower your interest rates.
It is important to remember that DMPs can only be used for unsecured loans such as credit cards. Your DMP cannot include collateralized debt. Most DMPs take three to five years to complete. You won’t usually be able to use credit cards during this time or open new credit lines.
Do it Yourself
Risk and expenses are associated with debt relief options such as the ones mentioned above. Even non-profit counseling agencies that facilitate DMPs may charge fees. Manage your debt if that is possible.
How can you determine if your business can handle its debt on its own? If either of these is true, then a DIY plan may work.
- Your debt can be repaid in five years.
- Your total debt must not exceed 42 percent of your gross annual income.
You don’t have to do it all by yourself. A credit counseling agency can help you with basic budgeting and a free consultation. It would help if you only worked with an agency accredited by the Financial Counseling Association of America or the National Foundation for Credit Counseling.
You may also find that a consolidation loan can help you lower your monthly payments for your DIY plan.
Speak to a bankruptcy lawyer
NerdWallet suggests that you consider bankruptcy if one of these scenarios is true.
- Even with severe spending cuts, there is no way to repay unsecured debt in less than five years.
- Your total debt equals or exceeds half of your gross annual salary.
However, neither scenario is a reason to declare bankruptcy. It would help if you spoke to a bankruptcy lawyer. Most attorneys will offer a consultation for free. The attorney will review your case and explain your options.
Beware of Debt Relief Options
Scams are common in debt relief. Sometimes, debt relief is possible. Sometimes, however, debt relief can be a lifesaver. You should confirm the amount of your monthly payment towards debt and fees, whether you are looking at a consolidation loan or DMP.