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Debt relief or debt cancelation is a situation where a debtor is forgiven partially or fully on his/her debt. Debt relief applies to individuals, business entities and even governments. 

Debt relief involves any action taken to reorganize debt so as to make it easier to pay back. Such actions includes extending the term of the loan, lowering the interest rate on loans and even reducing the total amount to be paid etc

Debt relief is an arrangement to bring some measure of respite to a debtor. Debt relief prevents bankruptcy. It is an agreement to forgive a debtor a part or whole of the debt. Creditors offer debt relief to their debtors to avoid having debtors who are defaulting on their loans.

It is better to amend the loan agreement rather than have people, businesses or governments who are so indebted, they cannot pay.

Debt Reliefs are given to individuals who can provide evidence that they cannot afford to pay all their debts. Extremely poor countries are given debt relief packages by the World Bank and International monetary fund (IMF) to help them in their development efforts.

Example Of Debt Relief 

In October 2005, the Paris club offered Nigeria a debt relief worth $18 billion and an overall reduction of Nigeria’s debt stock by $30 billion. 

How Debt Relief Works

Debt relief can come in a number of ways. Such as amending a debt obligation from a high interest rate to a lower interest rate to avoid a total credit risk. Another form of debt relief is debt consolidation. Debt consolidation is the act of combining several high interest loans to a single lower interest loan.

In this situation, the debtor the debtor takes on a bigger loan to pay off other smaller loans and debt. This makes it possible for a debtor to lump his debts together in one place. The debtor merges all his previous debts into a new loan. Alternatively, the debtor can also take up a balance transfer credit card.

This card allows the holder to pay no interest for a period of time. You can consolidate all your credit card payments into one new credit card.

Benefits Of Debt Relief To Countries 

1) Due to the increasing levels of debt relief granted to very poor countries in Africa, these countries are now spending more of their money on health, Education and economic growth instead of using the money to service debts which will only make them poorer.

2) Debt relief frees up resources for social spending. These countries channel these monies in elevating the standard of living for their citizens.

3) Improves public debt profile.

4) It reduces the debt of countries. 

Advantages Of Debt Relief To Individuals And Businesses

1) Individuals and businesses who benefit from debt relief are given a new slate to start afresh. Forgiving people of their debts gives them a new opportunity to start anew. It helps individuals and businesses to invest more money on their ventures.

2) Debt relief could improve their financial situation over time.


1) It encourages reckless borrowing and spending. Some African countries have become habitual borrowers because they hope to be granted debt relief in the future. Nigeria has borrowed massively that the debt profile is growing in leaps and bounds. Debt relief gives people in government the guts and impetus to borrow and spend as they like.

2) It lengthens the term of the loan. Depending on the relief granted, the term of the loan can be lengthened. Governments can borrow and leave it for future leaders to pay back. Such relief packages stains the credit scores of countries and in the case of individuals and businesses, it stains their financial reports.

3) It can affect credit score. When people have been forgiven their debts, it stays on their records. Creditors will refer back to it as a reason not to grant fresh loans as the individual in question, the business entity or the country does not pay back their debts.

4) It is not available for everybody as there are restrictions on income, assets etc.

5) It can remain on the credit score for up to 7 years.

Debt relief programs are not the right solution for everyone; therefore, you should understand and seek after the best one for you. Also, remember that debt relief can potentially make things worse. When you fall into the hands of scammers while searching for debt relief, you may end up having more debts than you could even imagine.

Before you go into any debt relief agreement, you should know the following: 

a) What you need in order to qualify for debt relief. 

b) What fees you need to pay. 

You should consider bankruptcy, debt settlement or debt management when you have no hope of repaying your debt within 5 years. However, if you can repay your debts within 5 years, then you might consider doing it yourself as your strategy.

Types Of Debt Relief

These five types have their basic features and time frames

1) Credit counseling:

Professional credit counselors help people to plan and budget their income. Sometimes people run into huge debts, not because they are not earning much, nut because they are not managing their available resources effectively.

The counselors help them to cut down on excessive spending and plug loopholes from where these monies usually drain out from.

2) Debt Consolidation

Another method of debt relief is debt consolidation. Here, the debtor merges all previous unsecured debts into one larger loan. The goal here is to cut down on high interest rates. Most of the smaller debts can have a very high interest rate, so consolidating all of them into one single low interest loan will help to reduce the burden on the debtor. 

3) Debt management

This is a carefully packaged plan which is geared towards keeping one’s debt under control. In debt management, a credit counselor helps the debtor to manage debts by bargaining with the creditors to lower the interest rates, and to extend the life span of the debt.

The debtor is expected to follow the counselor’s plan because failure to do so, will result in cancelation of the management plan and could also lead to the termination of concessions already received.

4) Debt Settlement

This is a form of debt relief where the debtor negotiates for a reduction in the total amount owed usually through a professional counselor. This is done in order to help lift the weight of the debt on the debtor. Debt settlement usually affects the debtor’s credit score.

5) Bankruptcy

This is the last resort when the other four has failed. This is the condition of not having enough money to pay all of your debts. Declaring bankrupt will make the courts to step in. They will assess the debts to determine the total amount owed.

They will also assess your assets and devise a plan to settle your creditors with the assets. They will inform your creditors that you have declared bankrupt and that they should stop further attempts to pressurize you for the money. The courts will use your assets to pay off your debts.

Debt Relief Programs

Debt relief programs are typically designed to assist debtors who are struggling to pay multiple debts and which they cannot pay. These programs help to reduce what you owe to a certain extent and also help to persuade your creditors to accept what you have as they may be unwilling to compromise.

When you enroll in the program usually with a debt settlement company, they will help you to open a debt settlement savings account where you can deposit money monthly. The debt settlement company then begins negotiations with your creditors in a bid to get them to compromise on your debt burden.

You will not pay any fees to the debt settlement company until they settle each debt on your list. On your own, you can speed up the process by being prudent on your finances and channel more funds into the debt settlement savings account.

Why Use A Debt Relief Program?

Creditors are not in business to lose money. They understand that most debts cannot be paid in full. They understand also that in many cases, they can lose all the money if they don’t compromise and agree to accept less than what the debtor owes. The debt relief program tends to make them understand that you are willing to settle the debts even if it is not 100%.

The debt settlement company helps you to bargain on the debt reduction. Most of the professionals work with the debt relief companies may have an already established business relationship with your creditors. This will help you a lot as the company will leverage on this to get a better bargain for you. 

How Long Does The Program Take?

Debt relief usually takes about 2 to 4 years depending on such factors like the amount of debt you enrolled, how much your creditors are willing to accept and how fast you are able to save.

These factors determine how long the program will last. Overtime, debt relief programs can get you out of a life of debt into financial freedom.

Debt relief however is not used for every loan. Secured loans usually have collateral on them. If you default on your loans which have collateral, the creditors will simply take over such collaterals. But unsecured loans have no collateral on them.

They are the ones that need debt relief. Unsecured loans such as credit card, medical bills, student loans and other personal loans with no collateral need to be paid back by the debtor.

Debt relief programs are not for everyone. They are designed specifically for people who are in serious debt.

People who enroll into the program are people who are serious about settling their debts. It is also designed to aid people who do not want to declare bankrupt because it will be in public domain for a number of years.

Does Debt Relief Programs Affect Credit Score?

Due to the fact that most times when you enroll in a debt relief program, you are expected to pay money into your debt settlement savings account instead of the creditor, if you miss any payment, it will lower your credit score. So it is advised to keep up with your payment schedule.

Debt Relief Companies

Debt relief companies also known as debt settlement companies are entities which are set up to assist in settlement of debts for a fee. Their primary objective is to be a mediator between creditors and debtor’s.

They try to find mutually acceptable means of settling debts. They get a certain percentage of the debt as charges. The debtor does not pay upfront until a debt is settled. They are intermediaries in the debt settlement process; they are not empowered by any law to force any creditor to accept their offer.

The success of their work is dependent on the creditors’ willingness to accept the offer and the debtor’s willingness to follow through with the plan. 

Debt settlement is not always an easy process. It is riddled with setbacks and very complex situations. Sometimes, the creditors may disagree on the terms of the settlement.

Again, the debtor may get scammed by fake debt settlement companies and again, the fees paid to debt settlement companies may be too high and further adds to the problem of the debtor. It is not guaranteed that a debt settlement program will succeed. 

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