If you’re in a situation in which your bills have become unmanageable, you’d do well to seek the services of a credit counseling organization, debt management program or a debt settlement company. With that said, finding a debt relief solution has several advantages and some potential drawbacks. Let’s look at each choice.
Offering assistance in developing budgets, managing money and clearing up debts, credit counseling agencies are usually non-profits offering their services through universities, credit unions, housing authorities and the like. Your bank, or even a good friend might be able to steer you toward a good credit counseling organization. However, you should be aware that their non-profit status does not mean their services are free, or even reliable. In some cases, they have actually caused more debt, so choose carefully.
Debt Management Programs
These work in conjunction with credit counseling organizations to help you pay your bills each month. You should only agree to enter a debt management program after consulting with a certified credit counselor, who will help set it up. Debt management programs work with your creditors to consolidate your debts. You’ll then deposit money into an escrow account each month, from which the counseling agency will make payments on your behalf. In some cases, the people you owe agree to waive fees or lower interest rates.
However, you’ll need to verify with your debtors that those concessions are genuine. Sometimes they are not. Additionally, it can often take as much as four years to work through a debt management program, during which you may be required to refrain from seeking credit.
Debt Settlement Companies
These for-profit businesses negotiate settlements with your creditors to reduce your debt. When you choose this option, you will need to make monthly payments into a separate savings account, from which funds will be drawn to satisfy your modified debt obligations.
When you work with a debt settlement company, you’ll stop making monthly payments to your debtors and send the money into that account instead. This means you will be getting collection calls in the interim and your credit rating will be lowered. Good debt settlement companies look over your finances and help you work out the best strategy to resolve your debt.
Then again, you must choose very carefully, as some of these companies are marginally effective. Look for one with a solid track record among people with whom they have worked before. For example, when you read a Freedom Debt Relief review, you’ll find many positive testimonials from folks who have been helped by the company.
Shopping for Debt Relief
Regardless of the nature of the organization or company, if they require you to pay a fee before they settle your debts—or enact a debt management program—they should be regarded with suspicion. If they pressure you to make voluntary contributions or tout a new government program to erase personal credit card debt, they’re probably best avoided as well.
If they guarantee they can erase all unsecured debt, or tell you to stop communicating with your debtors, that should be a red flag. Similarly, if they tell you they can stop collection calls, or guarantee unsecured debts can be settled for pennies on the dollar—think twice.
Avoid companies that won’t send you free information without getting personal financial information from you. Ditto people who try to enroll you in a debt relief program before they review your situation, or without teaching you budgeting and money management skills. What’s more, if they demand you make payments into a debt management program before your debtors have agreed to work with you, they’re probably not legitimate.
Finding a debt relief solution can be a Godsend, if you take your time and make sure the one you choose really is capable of doing what it advertises.