Single parents who owe money have several debt relief options they can turn to if their payments become unmanageable. Each option makes the debt easier to pay back in some way, such as by reducing the interest rate or giving the borrower additional time to pay.
Single parents should research these options carefully to understand the effect that each one will have on their finances and credit score. The following are some of the main debt relief options to look into.
Debt Consolidation with a Personal Loan
If you have multiple debts, you may choose to consolidate them by taking out an unsecured personal loan, usually at a lower interest rate or with a longer repayment period. You would then use the money obtained from the consolidation loan to pay off the previous debts. This may be a good option if the terms of the consolidation loan are better than the terms of the other loans and if you’re able to continue making payments to pay off the full amount of the loan.
Debt Consolidation with a Home Equity Loan
Borrowers who can’t obtain an unsecured personal loan at favorable rates may be able to consolidate their debts with a home equity loan. However, this option has a serious downside for single parents: Because your house serves as collateral, falling behind on payments could cause you to lose your home. Single parents should not consolidate with a home equity loan without first speaking to a credit counselor and exploring other options.
Debt Settlement
Debt settlement lowers a borrower’s credit score and should not be entered into unless absolutely necessary, but it can offer relief to borrowers who cannot pay the full amount of their unsecured debts, such as credit card balances. In debt settlement, you negotiate with your creditors, and if they agree that you probably won’t be able to pay everything you owe, they may accept payment for part of the balance and forgive the rest.
Debt Management Programs
To enroll in a debt management program, you would meet with a credit counselor and share information about your finances. The credit counselor then creates a plan in which you makes one monthly payment, which the program divides and distributes to your various creditors. The program may negotiate on your behalf to secure better interest rates or other terms. This is a good option for single parents who have enough income to continue making payments and who are willing to comply with the conditions of the program, such as not opening any new credit cards.
Whichever option a single parent chooses to pursue, talking with a non-profit credit counselor is always a good idea. Besides discussing debt relief and setting up a debt management plan, if appropriate, a credit counselor can assist you in budgeting for a family with a single income and can advise you on avoiding excessive debt in the future.
