Debt Relief in India: What It Is, How It Works & Is It Right for You?
The existence of loans in urban life exists by means of credit.
Whether the loan was taken out for a student's education, home mortgage, medical care or everyday living expenses, it is not unusual for individuals to be unable to meet their financial obligations due to events beyond their control such as job loss, decrease in income, or increasing debt with an increase in EMI (monthly installments) payments.
This is what debt relief is used for, not to avoid taking responsibility for your debts; but instead to provide you with a way to manage or deal with your debts when it has become very difficult for you to repay.
What is debt relief?
Debt relief refers to some type of arrangement to help individuals to lower, restructure or find a solution to their debts in a manageable manner. Some types of debt relief options include but are not limited to:
EMI restructuring
Payment plans negotiated with creditors
The goal is fairly simple:
1) Create a realistic way for you to repay your debt(s)
2) Lower financial stress
3) Restore to the borrower the financial control they had prior to the occurrence of the events that caused the financial difficulties.
Why does someone need debt relief?
Most people fall behind on payments due to life events outside of their control. Some examples of these include:
Job loss or reduction of salary
Medical emergency
Managing multiple EMIs becoming too great
High-interest credit card debt
Losses in their business
Debt relief becomes necessary if:
You cannot pay your current obligations based on your income anymore
You are currently late on or soon to be late for EMIs on a regular basis
How does debt relief work?
Typically, debt relief is not a ‘one-time shot’ but a structured process that follows a series of steps:
1. Financial Assessment
There is an assessment of the income, expenses and outstanding debts to identify total debt level.
2. Identifying the Right Solution
Depending on your particular situation, the next step is finding the most appropriate solution. The options available would depend on your ability to repay.
a. Consolidation (if repayment is possible)
b. Settlement (if a severe loss of ability to repay has occurred)
3. Negotiation or Restructuring
The next step is executing the identified solution through negotiating with the lenders or restructuring the debt (i.e., reducing the principal owed; restructuring reporting EMIs and terms of repayment with the lender).
4. Executing the Plan
You will then execute the repayment/settlement agreement you reached.
5. Financial Recovery
Once you have resolved your debts and are back on track, the next steps are:
You will rebuild your credit score
Continue maintaining your new financial discipline.
Types Of Debt Relief and Options
1. Loan Settlement
An agreement between lender and borrower in which the borrower pays a reduced amount to close their loan.
An agreement to pay less will work best:
If it is impossible to pay the full loan amount
When you are under financial stress and experience extreme financial difficulty.
2. Loan Consolidation
Taking several loans with different equal monthly payments (EMIs) and combining them into one larger EMI that is much more manageable.
A loan consolidation will work best:
If you have consistent cash flow
If your biggest issue is multiple payments, but you have enough income to make the repayments.
3. EMI Restructuring
Your lender will re-write your repayment terms to reflect:
Lower EMI amounts
Increase tenure over which you will repay the loan.
An rescheduled loan will work best:
If you expect to be in financial stress for a short time.
Is Debt Relief Good For You?
Is debt relief worth it or not depends on your individual situation.
Debt relief may make sense if the following conditions apply to you:
If you are having difficulty managing multiple EMIs
If you are currently under continuous financial stress and cannot see how to repay your loans in full.
Debt relief will likely provide the following benefits:
Reduce the amount of financial stress you are currently feeling
Reduce the likelihood of further delinquency
Provide you with a plan to move forward.
However, debt relief may not provide any benefit for the following reasons:
If you have a consistent income stream
If you can make your repayments as-is but just need to adjust a little to do so.
If you meet these criteria then it is likely that simpler solutions may be the best option for you.
What Are the Advantages to Having Eliminated or Reduced Debt?
Reduction of stress related to money
A more reasonable repayment plan
Clearance of old debts that have been owed for too long
A chance to create stability financially
Protection from harassment by creditors about the collection of old debts
Factors to Think About Prior to Selecting a Debt Relief Option
There can be a negative effect on your credit report from some options (e.g., debt settlement)
Not all options will work for every situation or individual
The proper documentation will be an important part of moving forward
Selecting a legal and structured option is critical
Avoiding Common Mistakes
Waiting until the situation has become very bad before addressing it
Getting loans for new debts to pay off your old debts - and not having a plan
Using fast - but questionable - options as your choice for resolving your debt
Not realizing how your credit report will be affected for some time
Expert Advice on Managing Your Debt Better
Be organised and keep track of all EMIs and commitments
Prioritise your debt, especially those with high rates of interest
Avoid borrowing more than you need to
Build an emergency fund over time
Consult a professional to help you decide when to take action
How FREED Can Assist You
At FREED, we acknowledge that each individual may have different forms of financial debt; as such, we take an individualized approach based on your circumstances.
The basis of our service is:
Helping to identify each potential option available
Providing guidance in selecting the best possible option available for resolution
Assisting throughout the entire process related to the selection made
With FREED's assistance, you will be able to:
Identify loan settlement or consolidation alternatives
Receive professional assistance with negotiating and developing an effective strategy
Assess and improve your credit rating
Develop long-term financial solvency
FREED will assist you in resolving your debt in a legal and safe manner.
Consult with a team of experienced professionals at FREED for help in finding the option most suitable to your personal needs.
Final Opinion
Debt elimination is not meant to enable someone to avoid or evade their obligations but rather serve as a process that enables one to manage one's ability to repay their debts, regardless of how unforeseen circumstances occur along the way.
If utilized appropriately, debt management can help you:
regain authority over your life,
lessen anxiety, and
facilitate the creation of or restoration to solubility on a long-term basis.
When considering debt resolution, we encourage everyone to use their own significant financial experience to determine the best resolution method for each unique situation while also taking prompt action once a decision is made.
FAQs
1. Is debt relief legal in India?
Yes, debt relief options like settlement and restructuring are legal when done through proper processes.
2. Will debt relief affect my credit score?
Some options, like settlement, may impact your score temporarily.
3. Can I avoid paying my loan through debt relief?
No, debt relief involves resolving debt responsibly, not avoiding it.
4. Which is better: settlement or consolidation?
It depends on your income, debt level, and repayment capacity.
5. How do I know if I need debt relief?
If you are struggling to manage EMIs consistently, it may be time to evaluate your options.