5 Debt Relief Options to Consider


5 Debt Relief Options to Consider

If you are in debt, you may feel, like many fellow Maryland residents do, that there is no way out of it. Fortunately, that is not the case. There are many debt relief options available to borrowers and credit holders. Of these, the main options for debt relief available to debtors in Maryland are paying the monthly balance, debt counseling, debt settlement, consolidation loans and bankruptcy. Each of these debt relief options is described in more detail below. The first step to securing your debt-free future is to select the right debt relief option for you and your unique situation. Regardless of which option you choose, one thing to keep in mind is that the best way to succeed at it and make it work for you is to approach debt relief with a budget plan that lists and calculates your current income, expenses, total debt and monthly minimum payments on your loans and credit accounts.

Pay the Monthly Balance

Paying only the minimum monthly payments on your debts is a sure-fire way to remain in debt for as long as possible and pay the largest total amount for your loan or credit in the long run. Instead, pay the full monthly balance each month, and do not use your credit card for any further purchases or take out any additional loans unless you are confident you can do the same when the next bill comes due. By paying the full monthly balance each month, not only do you keep your debt from piling up and costing you more through compounded interest, but you could also improve your credit score due to a higher ratio of available credit to income. If you cannot afford to pay the full monthly balance each time, then at least try to pay more than the minimum payment. In doing so, you will lower the amount of principal on which interest is charged.

Debt Settlement

Through the help of a debt relief company or debt settlement agency, you can get the amount of your debt reduced to a percentage of its original amount. The debt settlement or relief agency will negotiate this reduction for you. The process by which this occurs is that you cease making payments to your creditors and instead make payments into an account your debt settlement agency helps you to set up with a financial institution. As each creditor takes action against you for defaulting on payment, the debt settlement agency steps in to negotiate a settlement on your behalf. Your credit report will be negatively affected while undergoing this process, although it will ultimately improve your credit once your creditors are completely paid off.

Debt Counseling

Sometimes known as debt management and credit counseling, debt counseling involves receiving guidance, advice and personal tools for getting out of debt through a program in which you enroll. The credit counseling or debt management company not only helps you devise a plan for reducing or eliminating your debt, it helps to carry out and enforce that plan by consolidating your debt and paying your creditors off on your behalf through an account that you are responsible for continuing to keep funded. When you sign up with a credit counseling company, you are assigned a negotiator and, every month, you deposit a predetermined amount into that account based on your credit negotiator’s assessment of your ability to pay. Debt management and credit counseling companies can also help you to negotiate better loan terms on your debt, potentially including a lower interest rate, reduced monthly payments, and even a possible reduction in the total balance due. Using a debt counseling service can negatively impact your credit score in the short run, but, if successful, can improve it in the long run. The difference between credit counseling or debt management and debt settlement is that debt management companies offer counseling to help you remedy poor financial management habits in addition to helping you find debt relief.

Consolidation Loans

Debt consolidation is when you combine all of your disparate debts into a single loan. With a single consolidation loan, you may have an easier time meeting monthly payments. Consolidation loans also frequently offer better loan terms in regard to interest rates and minimum monthly payment amounts than the individual loans that made them up. A home equity loan is one of the most common types of debt consolidation loans taken out, although doing so puts one’s home at risk as collateral. Like several of the other forms of debt relief to consider, consolidation loans may temporarily have a negative impact on your credit score.


The option of last resort, bankruptcy should only be considered after all the other options mentioned here have been exhausted. In bankruptcy, the court declares you unable to repay your debts. Bankruptcy does not necessarily absolve you of those debts, however. Instead, there are two different types of bankruptcy, each with its own rules on your obligation for your debts. With Chapter 7 bankruptcy, you are forgiven of your debts while, with Chapter 13 bankruptcy, you are expected to repay a portion of your debts. It is up to the judge which type of bankruptcy to award you. If you are approved for Chapter 13 bankruptcy, then your assets beyond what the court deems that you require in order to live can seized in order to repay your creditors as much of your debts as possible. Of all the debt relief options, bankruptcy has the direst impact on your credit score, remaining on your credit report as a negative mark for 10 years.