Subscribe to our mailing list

X

Shopping for Consumer Debt Relief Companies

When mama told me I better shop around, she never thought I’d be shopping around for consumer debt relief companies. You’ve heard me talk about being in debt. I know how it feels because I’ve been there. Now that I’m debt-free, I’d like to help others who are in debt do the same.

I’ll be the first to tell you that no matter what, you should take as many steps as possible to relieve your credit card debt on your own. Here are some ways you can do that:

  • Start with your lowest balance credit card first and pay it off in full as soon as possible. Then do the same with the next largest balance, and so on. For the other cards, try to pay the minimum plus the interest or finance charge each month.
  • Transfer your balances to a card with a 0% introductory rate and no balance transfer fees. Most of these cards only have the 0% introductory rate for 12-18 months, but you can find some that have it for up to 24 months. This only really works if you can pay the debt off in full before the end of the interest free period. Otherwise it’s a marketing trap.
  • Call your credit card companies and ask for lower interest rates.
  • If the above methods aren’t helping, contact your credit card companies and ask if they can work out a payment plan for you that’s manageable or if they will settle for less.

If you decide to contact a consumer debt relief company for help, realize there a lot of different kinds out there depending on the kind of debt you have:

What to Expect from Consumer Debt Relief Companies?

 

When you decide debt relief companies might be the best option for handling your debt, you can expect them to give you choices about how you want to handle your debt. First, a credit counselor should review your financial situation. Then he or she can recommend an option, including:

  • Debt Repayment – This isn’t an official program, per se. If your debt isn’t at the level where an official program is needed to manage it, an honest debt counselor will tell you that and not put you—and possibly your credit—through a more formal program.
  • Debt Management Program – This is a program through which you make a monthly deposit that the debt relief company uses to pay your unsecured debts on a payment schedule the counselor develops with you and your creditors. You may have to agree not to use credit cards or open new credit accounts until the obligation is paid though. The downside is that you might not have enough money during the life of this program to get back to building your emergency fund and saving for retirement. Lost time saving is lost returns.
  • Debt Consolidation – This program consolidates all your unsecured debt (credit cards, medical bills, etc.), then your credit counselor helps you get a loan to pay if off so you only have one payment each month. Just keep an eye on what the interest rate on the loan will be. Do the math to make sure it’s a good move for you.
  • Debt Settlement – Through this option, the debt relief company makes your creditor an offer they can’t refuse, resulting in them accepting less than what you owe to consider the debt settled. This will hurt your credit and not all people who try to settle their debts actually eliminate all they owe. There can be some stiff tax consequences as well.
  • Bankruptcy – This is the fastest way out of debt for the least amount of money. People who file bankruptcy recover their credit faster and do better financially in the future. Read this article for more information about bankruptcy.

No matter what company you decide to work with, do your homework, check them out, and make sure you read the client agreement and understand what you are signing up for before you leap.