As the average US household struggles to get their personal finances and debt under control, the rising cost of living and median household income have outdone each other; putting financial pressure on millions of people.
From 2021more … than 77% of American households have at least some form of debt to their name, while the average American adult is pretty much sitting with $58,604 in debt. But these averages are also not the same across the generational spectrum.
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According to data published by Experianconsumer debt hit an all-time high totaling more than $14.8 trillion, rising to a 4% annual rate since 2015.
In the USA, Generation Z (ages 18-23) have the lowest amount of debt at $16,043, while Generation X (ages 41 to 56) average over $140,000 in debt. Debt repayments stagnated in the early months of the pandemic as the government sought to completely or partially freeze debt repayments as the Fed lowered interest rates.
Even after the partial debt freeze and the low interest rates that have been traveled up to 0.25% in recent weeks as the government tries to tackle soaring inflation – the debt burden now eclipses millions of American households, and that’s only become more serious.
As households struggle to establish a manageable debt repayment strategy and the burdens begin to weigh more heavily on the pockets of the average American family, how can debt relief help ease stress? and the difficulties associated with growing debt?
What is Debt Relief?
Debt is not an easy challenge, and although it depends on the type of debt you owe, whether it’s medical bills, credit card debt, student loan, unpaid or delinquent taxes or a personal loan, debt relief is a strategy that allows you as a consumer to make adjustable debt payments either by yourself or with the help of debt settlement companies.
Ultimately, debt relief is an umbrella term that can be used to describe a range of things. These include debt settlement, debt counselling, do-it-yourself debt relief or debt management. According to the gravity Depending on each situation and the type of debt you have to repay, various options are available to you to help you reduce your debt burden.
Although consumers can choose from different debt relief strategies, that does not mean that everything will always go according to plan. Debt relief can hamper your overall financial growth and stability, and while debt has played a major role in this, the road to repayment is not without discomfort.
Debt relief risk
Yes, paying off debt is one of the most important things anyone in a difficult financial situation is looking to do. It can take years for your name to be cleared of debt, and depending on your strategy, there are certain risks you need to be aware of along the way.
Aimless Debt Management Plans
A debt management plan can help you pay off certain types of debt like credit card debt, commonly called unsecured debt. Even with a debt management plan, some participants struggling to meet certain requirements or complete the plan at all.
If payments are missed or cannot be refunded, credit unions and banks can close your credit card accounts. This leaves you without the safety net of having a credit card, and while the management plan may not impact your credit score, closing an account may.
Lower credit score
Having accumulated any type of debt, especially those that cannot be repaid, can have a direct impact on your credit score. And although at the time it might not seem like the biggest problem, restoring your credit score can take up to ten years or more.
Some participants file either for Chapter 7 or Chapter 13 Bankruptcy, which can help cancel debts or amounts owed. In most cases, people have successfully filed for bankruptcy, but rebuilding your credit score can take up to 8 years.
Some strategies won’t necessarily hurt your credit score, but they’re only for people who don’t miss any payments or fall behind on their repayment schedule.
Increase in your debt
Even if you are looking to pay off debt or unpaid amounts, you may find yourself in a situation where you are increasing your debt even more than it already is.
Some debt consolidations or other forms of credit may offer short-term debt relief, but there are initial fee, interestand penalties attached to that too. In some cases, people rely heavily on their credit cards to pay off their debt, which is one of the last avenues to take, as it can quickly lead to even higher repayments and the resulting interest.
Taking out a consolidation loan may also come with loan origination fees. Companies that are open to negotiating a debt settlement plan may charge you up to 15% to 20% of the amount settled or canceled for their services.
Debt relief awards
There’s no better way to describe the feeling of being completely debt free, and while it takes a little while to get there, it is possible to completely get rid of any debt burden.
Variety of debt relief strategies
There is a variety of debt relief strategies available to help ease the burden of debt and the stress associated with it.
Although the path to being completely debt free is not easy, it does mean that you may have to seal up your car, a house or perhaps valuable possessions; being debt-free puts you in a better financial environment and can help pave the way for financial growth.
Less debt, less risk
Any form of debt in your name carries unimaginable risk if not properly managed. If your debt is not completely unmanageable, you may be able to apply for a credit card with a 0% transfer offer.
This allows you to transfer all debts due to one account, which means you only have to make one payment per month. This gives you some time to strategize for a new management plan, but it also gives you some space to pay off outstanding debts.
Rebuild your credit score
It may have taken a little while, and yes, it won’t happen for a few months before your credit score returns to what it was, but now you are able to rebuild your credit scorewhile being more aware of how to better manage your debt.
Not all debt scenarios are the same, and it mostly depends on how prepared you are to handle your debt or how bad the situation is. Ultimately, you have alternatives that you can use to negotiate or consult with a debt counselor.
Although it may seem like it’s totally impossible to pay off any type of debt, there are some strategies that can help you in different ways. Paying off debt may look different to many people, and not every scenario is the same.
The seriousness of the bump should never be ignored, or perhaps overshadowed by others financial strategiesas it ultimately determines the health and reputation of your short and long term financial endeavors.