How Does Debt Relief Work

Are you currently experiencing financial difficulties? Or is your business going downhill? Plus various obligations, including debts to many banks that have not been paid, of course, will add to the burden on your mind. If business conditions are still not recovering, there are many ways and solutions to overcome this, one of which is by applying for debt relief. The question is how does debt relief work?


Speaking of debt relief, this is a concern for the government, because the inability of the community to pay debts is certainly the cause of disruption to economic stability. 

The government in this case also helps the community by providing extraordinary support to accelerate economic recovery, such as during the Covid-19 pandemic.

What is Debt Relief?

Debt relief is a program to accelerate debt settlement carried out in an integrated manner by providing debt rebates with predetermined conditions.

This debt relief program is usually aimed at those who have debt obligations, both entities and individuals.

This debt relief program has been given as one of the related government policies as a result of the COVID-19 pandemic some time ago.

This program is given to those who are not financially capable so they cannot pay installments on time. And of course, the delay in installment payments will affect credit records and scores.

How Do Debt Relief Programs Work

For those of you who want to get debt relief, due to various factors and causes, several things must be done, including:

  • You must contact the bank and let them know that you want to apply for debt relief.
  • You are required to complete the data and also various documents requested by the bank as administrative requirements.
  • Wait for information from the bank on your loan relief application.
  • You will get a decision from the bank on an approved debt relief scheme.

Debt relief will certainly greatly help you in completing the obligations that you have to pay, there are main conditions for getting debt relief, one of which is that you must have proof that you are no longer able to pay obligations, for example, you were affected by Covid-19 some time ago.

The bank will ask you for proof as a condition of getting debt relief, for example:

  1. Official certificate from the company regarding salary deduction or termination of employment.
  2. Savings account or can be proof of salary payment showing salary deductions.
  3. For you business people, especially small businesses by showing a significant decrease in revenue.

This document is needed so that banks or financial institutions that make decisions about debt relief can make decisions to provide debt relief or not.

Debt Relief Scheme

After the application for debt relief is approved, you will be offered several schemes for debt repayment.

The form of this debt relief payment scheme, of course, depends on the loan product you enjoyed before.

Debt relief schemes offered include:

  • Reduction in interest rates.
  • Grace period.
  • Extension of loan tenor.

Reduction in interest rates

This means you still have to make principal and interest installment payments, but with a lower interest rate so that the number of installments per month becomes lower.

Grace period

This means that you only pay the interest during the period determined by the bank (usually given as long as 12 months). You do not pay the principal installment during this grace period. But this unpaid principal installment will be transferred to the time after the grace period ends. If the grace period is 12 months, then in the 13th month onwards the installments will be higher due to the overflow of principal installments that have not been paid for 12 months. In this scheme, the loan tenor is not renewed.

Extension of loan tenor

This means that your debt repayment time is extended. For example, the tenor of your loan is 5 years, then by the bank it is extended to 10 years. Because the tenor was extended, as a result, the monthly installments became lighter.

Of course, the scheme presented can vary between banks and other financial institutions, depending on the policy of the lending bank.

What to Understand about Debt Relief

As a suggestion, you should analyze the advantages and disadvantages of each scheme offered by the bank. Do not rush to choose and determine the scheme offered.

On this occasion, you have the right to convey to the bank or financial institution that you need time to think, even you also have the right to simulate every scheme offered.

In addition, as long as the new scheme, debt relief has not been approved and signed by both parties (debtor and bank), the debtor still has to make ongoing debt installment payments. If the debtor does not perform its obligations as long as the new scheme has not been signed, it will affect the credit score and still be subject to fines.

Hopefully this information about "how does debt relief work" is useful and can be a reference for those of you who are applying for debt relief.


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