Overview
While loans can help you meet a variety of financial goals, paying them back can be overwhelming, especially if you’re stuck with high interest rates or owe a large sum of money. By reviewing your repayment plan, looking into potential forgiveness programs, and exploring special relief programs, you can make the payoff process far more manageable.
Key Takeaways
It’s important to choose the right repayment strategy, which includes loan terms, interest charges, and monthly payments for your unique situation and goals.
While loan forgiveness might be an option, it requires you to meet rigorous criteria and often comes with several trade-offs.
Before committing to a loan relief program, like debt consolidation or credit counseling, weigh the pros and cons.
Repayment, Forgiveness & Special Loan Relief Programs
To pay off your debt successfully, you’ll need to consider three main factors: repayment, forgiveness, and special loan relief programs. Let’s dive deeper into each one.
Repayment
Any time you take out a loan, whether it be for your house, car, education, or home renovation, you’ll need to pay it back. Your interest rate and term will dictate your monthly payments and how much you’ll owe each month to pay off your debt.
If your circumstances have changed since you initially took out your loan, it’s a good idea to revisit your repayment plan and adjust it if needed. For example, you might decide to extend your loan term to lower your monthly payments and free up your budget. On the flipside, you may want to shorten your term to increase your payments and save thousands on interest over time.
Loan forgiveness
Loan forgiveness is when you’re no longer on the hook for part of (or all) of your loan. In a perfect world, everyone would qualify for some form of forgiveness. The reality, however, is that each forgiveness program comes with very specific eligibility requirements. Here are 2 of the more popular loan forgiveness options:
Public Service Loan Forgiveness (PSLF): If you have federal student loans, PSLF might be available to you. As long as you work full-time in an eligible public service job and make 120 qualifying student loan payments, the remainder of your balance will be forgiven.
Income-Driven Repayment (IDR): Also designed for federal student loan borrowers, an IDR is designed to lower your monthly payments. It may forgive your balance after 20 to 25 years of qualifying payments based on your income and family size. There are five types of IDRs: ICR, PAYE, IBR, SAVE, RAP.
You can learn more about these loan forgiveness programs on the U.S. Department of Education website. It is important to note that while loan forgiveness might seem like a dream come true, it usually takes years or even decades to qualify for it. Additionally, you may be required to pay taxes on the forgiven amount.
Loan relief programs
In addition to standard repayment and loan forgiveness, there are special loan relief programs that are worth exploring, such as:
1. Debt consolidation
Debt consolidation lets you roll several debts into one account, often with a lower interest rate. With this strategy, you may find it easier to repay multiple debts. You’ll only have to worry about one manageable payment per month rather than several payments with varying amounts and due dates.
Who is debt consolidation for? If you’re overwhelmed with several high-interest debts and looking for a streamlined approach to the debt payoff process, debt consolidation is worth exploring. This is particularly true if you can land a lower interest rate than the rates you’re currently paying.
2. Credit counseling
A credit counseling agency may help you resolve your debt through an affordable monthly payment plan that aligns with your budget and lifestyle. If you go this route, you can expect a credit counselor to review your budget and credit so they can provide you with solid recommendations for a more secure financial future.
Who is credit counseling for? Credit counseling might make sense if you’re seeking guidance with budgeting and overall financial management. With a credit counselor by your side, you can receive the personalized recommendations you need to succeed.
3. Debt management plans (DMPs)
Offered by credit counseling agencies, DMPs can allow you to secure lower interest rates with your creditors and get out of debt faster than you’d be able to with minimum payments. Once you sign up, your credit counselor will negotiate a better rate and set you up with a payment plan. Over the course of 3 to 6 years, you’ll send monthly payments to the agency, and they’ll distribute your funds until you’ve repaid your debt.
Who are DMPs for? If you feel like you’ve gotten nowhere with your minimum payments and want to pay off your debt faster through an organized, guided approach that can lead to interest savings, a DMP may be a solid choice.
4. Debt settlement
Debt settlement is when you (or a professional) negotiates with your creditors to settle for less than what you owe. If you enroll in a program with a debt settlement company, you’ll deposit money into a special account every month. As your balance rises, the company will reach out to your creditors to negotiate lower amounts. You’ll owe a fee of anywhere from 15% to 25% of your total enrolled debt. Debt settlement programs often take 24 to 48 months to complete.
Who is debt settlement for? Debt settlement can be a smart move if you have at least $10,000 to $15,000 worth of unsecured debt and are struggling to repay it through other methods and want to avoid bankruptcy.
Is Debt Relief a Good Idea?
Before you go ahead and move forward with a debt relief solution, such as debt consolidation, credit counseling, a DMP, or debt settlement, do your research and read the fine print. Make sure you understand all of the conditions, fees, and caveats involved. Remember, the benefits must outweigh the risks.
Also, be wary of scams and never work with any company or professional that demands upfront payment, makes guarantees, or requests access to your personal or banking information.
Work Towards a Debt-Free Future
Most people have dealt with debt in some form or another, and the ultimate goal is usually the same for everyone: to become debt-free. While repayment is the best option, don’t hesitate to look at other ways to pay off your debt. Just be aware of scams and the potential hit to your credit score.
With a bit of patience, persistence, and knowledge about the various programs at your disposal, you can make some serious headway on your debt. Once you tackle it, you’ll enjoy more wiggle in your budget and be able to work toward other short and long-term financial goals.
by your friends at The Daily Navigator
