Debt relief is just what it sounds like — a potential path to getting out from under serious debt if paying it off the normal way isn’t realistic. Rather than filing for bankruptcy, debt relief gives consumers an opportunity to pay off some of their debt rather than all of it.
The reason why some lenders are willing to accept a partial payment is because borrowers who attempt debt relief have already fallen behind on one or more payments, which indicates to lenders they may be at risk of defaulting altogether. Rather than allowing this default to happen and receiving no payment, lenders may agree to take a percentage of the total balance as long as it’s paid off in a timely manner.
It is possible to try to reach a debt relief agreement on your own, though many consumers find it helpful to work through a structured program in which they deposit funds every month leading up to the negotiations and rely on a team of trained professionals to handle the actual back-and-forth with lenders. For each debt successfully settled, the borrower then pays whatever percentage fee has been agreed upon in the initial contract.
However, not all debts and borrowers qualify for this form of debt relief. Here is more on the typical eligibility requirements and what will be expected of you if you do decide to enroll.
- Have Unsecured Debts
The first thing to consider is the type of debts you’re dealing with. Debt settlement programs usually only accept unsecured debts, or those without collateral. Two leading examples of unsecured debts are credit cards and medical bills that have gone to collections. Auto loans and mortgages are excluded from these programs, as they are backed by collateral the bank can seize if enough payments are missed.
There is some gray area in terms of what kind of debts different debt relief companies will accept, however. For instance, some programs will work with private student loans; others exclude all student loans. Similarly, some programs work with business loans while others will not. This is why it’s so important to visit a program’s website for a list of exactly the type of debts they will accept.
- Have Enough Debt
In addition to the type of debt(s) you’re carrying, the amount of these debts matters too. Debt settlement is too heavy-duty a solution for debts under a few thousand dollars. This means most companies have a minimum amount of debt required to enroll. Some programs set the bar at $5,000 or above; others require at least $7,500 or $10,000 to enroll. Matching the amount of your debts to the program minimum will help you choose a fitting company.
- Have a Documented Financial Hardship
Another aspect of qualifying for debt relief programs is being able to demonstrate a financial hardship that has made it difficult or impossible for you to stay on top of your payments. The debt settlement program under Freedom Financial Network, co-founded by Brad Stroh and Andrew Housser, outlines on its website that its enrollees have usually experienced a significant financial hardship such as:
- Divorce
- Medical bills
- Income interruption
- Job loss
The worldwide COVID-19 pandemic and its economic effects have fueled many of these financial hardships. Whatever your situation, be prepared to provide documentation to demonstrate these hardships and their impact on your ability to pay your bills.
Qualifying for debt relief is a matter of ensuring you have the right type and amounts of debt as well as a hardship that has contributed to your inability to make consistent payments on your bills.
