Government Debt Relief Options – Break the Cycle of Debt
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If you are drowning in debt and waking up with the worry of a growing amount, you might feel like there’s no way out. With high interest rates on credit cards and loans, the balances can grow over time, making it very difficult to pay off the debt.
You might be relieved to know that there are government debt relief programs that can make it easier for you to get out of the vicious cycle of debt. The U.S. Federal Government does not offer debt relief programs on its own, but there are other strategies you can consider to manage the debt.
It is important to find a debt relief program that fits your needs. You must consider the kind of debt you have, how much cash flow you have, and the amount you can realistically manage in monthly payments. After you have a basic idea of the amount you owe and how much you can afford, you can choose one of the following methods to get out of debt.
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Overview of the best government debt relief options
Program | Best For |
Federal student loan forgiveness | Borrowers with income less than $125,000 annually |
Income-driven repayment plan forgiveness | Reduction of the payment |
Public Service loan forgiveness | Government and non-profit organization employees |
Total and permanent disability discharge | Disabled borrowers |
The Servicemembers Civil Relief Act | Borrowers in active-military duty |
Debt Consolidation | One loan for all unsecured debts |
Balance Transfer | Lower interest rates |
Debt settlement | Lowering the debt amount |
Private debt relief | Reduced balance and interest |
Credit Counseling services | Guidance through financial hardships |
Bankruptcy | Last resort |
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Best government debt relief options
Federal student loan forgiveness
The biggest non-housing debt in the U.S is student loans. This balance has increased significantly over the past decade. Today's student loans are federal loans and eligible for government student debt relief programs. If you have short-term problems, you can consider a forbearance plan or deferment but if you are struggling with debt payments, consider a loan forgiveness plan.
President Joe Biden had announced that it would cancel up to $10,000 in student debt for borrowers who earn $125,000 a year or less. Further, a loan amount of $20,000 will also be forgiven for students on Pell Grants. However, the plan may not be live or available for long now.
Income-driven repayment plan forgiveness
Those who cannot afford the payments can manage to lower them by opting for the IDR plan. The remaining balance will be forgiven if you make the payment for about 20 to 25 years. The forgiven amount will remain taxable as your income.
Public Service loan forgiveness
Many jobs offer student loan forgiveness, and if you work for the government or a non-profit organization, you will qualify for it. Your loan balance will be forgiven if you work for the qualifying employer for 10 years while you continue to pay the loans. The good thing is that the forgiven balance will not be taxable as income.
Total and permanent disability discharge
Those with a total and permanent disability will qualify for a loan discharge, and if it is forgiven after Jan 2018, the balance will not be taxable.
The Servicemembers Civil Relief Act
If you are in the active-duty military, you qualify for help through the Servicemembers Civil Relief Act. It has some protections and benefits which can reduce the interest rates on your existing loans to 6% and could limit the collection activity that collection agencies do. Taking advantage of this Act while you are deployed will make the payments more manageable and prevent the balance from growing with time.
Debt consolidation
Those who need more time to pay down the debt should consider a debt consolidation loan. It is a strategy that allows you to take out a loan for the amount of the current medical bills, credit card debt, or other debt. This amount can be used to pay off those balances, and you will have just one monthly payment for one loan.
Debt consolidation has low-interest rates compared to credit cards, and you have ample time to repay the loan, making your payments more affordable. Different types of unsecured debt can be consolidated, including credit card debt, payday loans, medical bills, and personal loans. Secured debt cannot be consolidated. You must have a repayment plan before consolidating the debt; otherwise, it will not address the cause of the issues.
Relieve $25k+ in Credit Card Debt or Personal Loan Debt With TurboDebt
- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Balance transfers
When the balance is not too large, and you can manage to pay it off in a couple of years, then you might want to consider a balance transfer. It will allow you to transfer the credit card balance to a different card that has a lower APR. Even if you opt for a 0% APR credit card, you will have 0% interest for a specific period, and you will get a year or more to pay off the debt without any interest charges. A balance transfer will help save money and pay your debt sooner.
Related: Best Balance Transfer Credit Cards
Debt settlement
You need to work with a debt settlement company for a debt settlement program. It works in a pretty straightforward manner. The process involves lowering the amount of debt you owe. It involves making the repayment by spreading the debt over a longer period. You will have to negotiate for it, and if the creditor accepts the offer, you have more time to repay the money. It can also lead to savings in fees and interest charges.
However, there is no guarantee that the creditor will accept a settlement. You also have to pay the fees for the services of debt settlement companies.
Private debt relief
If you need more help with the debt, you might want to consider working with a private debt relief company. They can help negotiate with the creditors to lower the interest rates and waive the fees. Besides that, the credit counselor will also help create a debt management plan so that you can pay off the balances over five years.
Many companies do not charge any upfront fees for this, but many companies charge high fees without offering the right service. To avoid such scams, you must ensure that you do your homework before agreeing with the organization. You can also contact the consumer financial protection bureau to ensure it is legitimate before you work with them. All companies have eligibility criteria for a minimum debt. Working with a private company might be a good idea if you are looking for credit card debt relief.
Credit counseling services
You can use credit counseling services to get out of financial hardship. It can help solve your money problems. All you have to do is discuss the financial situation with the counselor, and they will help develop a plan. They assist with preparing a budget and help you find the right money management programs.
You can easily find counseling options at religious organizations, credit unions, nonprofit agencies, and extension offices. Remember to check that the credit counseling service is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. The counseling services come from nonprofit credit counseling and for-profit debt relief companies.
Bankruptcy
If you have exhausted all the options and cannot manage debt, you can consider declaring bankruptcy. The process involves liquidating or selling your assets to pay the debt. It might not be an easy decision, but it can be a potential solution. If you choose this route and the request is approved, the debt can be discharged, and your creditors will no longer pursue money. You can declare bankruptcy in two ways:
Chapter 7: With Chapter 7 bankruptcy, all your non-exempt assets will be liquidated but you will be able to keep your work-related tools and car. The other valuables will be sold to satisfy the creditors. It is also known as straight bankruptcy.
Chapter 13: In Chapter 13 bankruptcy, it is possible to keep the car and home but you will have a repayment plan approved by the court. This plan will allow you to use your future income to repay the debt instead of seizing your assets.
Bankruptcy will satisfy the creditors but should only be considered a last resort. You must also consider the attorney fees and the court filing fees. In case it is approved by the court, bankruptcy can remain on the credit report for up to 10 years, making it difficult for you to qualify for a personal loan or credit card. Consider it as an option only if unexpected expenses like medical bills have impacted you. This process can also be tedious and expensive.
Relieve $25k+ in Credit Card Debt or Personal Loan Debt With TurboDebt
- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Best government debt relief options summary
Program | Impact on credit score |
Federal student loan forgiveness | Yes |
Income-driven repayment plan forgiveness | No |
Public Service loan forgiveness | No |
Total and permanent disability discharge | No |
The Servicemembers Civil Relief Act | No |
Debt Consolidation | Yes |
Balance Transfer | Yes |
Debt settlement | Yes |
Private debt relief | Yes |
Credit Counseling services | No |
Bankruptcy | Yes |
FAQs
Is there government protection against debt collectors?
Government debt relief programs offer legal protection under the Fair Debt Collection Practices Act. This will limit the actions of the debt collectors. They are prevented from very specific behavior, including the use of threatening language or threats of arrest. You also get protection in the case of a lawsuit and a potential judgment.
What are the alternatives to Government debt relief programs?
There are many alternatives to government debt relief programs. You can find many solutions when you are in financial hardship or struggling with credit card debt. Paying off debt aggressively or a debt consolidation loan can put an end to your problems. If you often have trouble making the minimum payments, you must consider a debt settlement program. Private companies are happy to help in cases where the government cannot help.
How can I avoid scams in the debt settlement process?
Many scams occur under the name of debt settlement. To stay safe, you must avoid doing business with a company that charges upfront fees before settling the debt, promises that it can settle all the debt for a guaranteed percentage reduction, offers a new government program, offers a guarantee to make you debt free, asks you to stop communicating with the creditors and guarantees that your debts can be paid off for pennies.
Relieve $25k+ in Credit Card Debt or Personal Loan Debt With TurboDebt
- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
The bottom line
You must remember that when you borrowed the money, it was an agreement to repay it. No lender is required to give you a break, no matter your reason. The creditor only wants to be repaid, and once the account goes into collections, they will lose money. Hence, the best route is to try to work with a creditor before the account goes bad.
There is always a way to get out of different types of debt, but you need to work with the right financial institution or program. You will find debt solutions that will help strengthen your financial situation and give you a fresh start. But this will require a lot of financial management, budgeting, and following a payment schedule. Once you are debt-free, remember to be cautious with your money and understand personal finance so you have a hold on where the money is going.
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Writer
Vandita Jadeja is a financial writer and editorial assistant at Joywallet. She loves to read and write about money and brings 7 years of experience from the financial industry. She loves coffee, mountains and sunsets.
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