Debt is a part and a puzzle of life today, so it’s easy to find yourself overdue with debt. And if you’re struggling with high credit debt balances or lots of debt, you most likely have considered debt relief programs to help you get a foothold on your finances. This is an idea worth considering because there’s a variety of debt-elimination programs, as evidenced by the many billboards you can see while driving on the highway.
With that said, are these debt relief programs any good for resolving your debt? This is an important question you must ask yourself to avoid putting yourself in more serious financial difficulties. Here’s a quick guide highlighting whether debt relief programs are good. Let’s get started.
What is Debt Relief?
Before going any deeper into debt relief programs, you first need to understand more about debt relief which depends on several factors such as interest rates, overall credit, your current accounts and the amount of existing debt. Debt relief, also termed debt adjustment or debt settlement, refers to a situation whereby a third-party company handles your debt repayment on your behalf.
In most cases, debt relief companies aim to pay back a lower amount to the creditor than what you currently expect from you. The difference is what they consider payment for services rendered to help you be free from debt. They also generate money by charging fees for creating and maintaining savings accounts with them while you’re settling debts, which could go on for months, depending on the agreed-upon terms.
But before the debt relief company approaches your creditor to agree on favourable terms, then you must make several monthly deposits rather than pay your debts so that they can set up your account. Once you reach a specific target amount, the debt relief company will approach your creditor with a partial repayment deal. And to convince the creditor to accept the deal, they’ll argue you may file for bankruptcy and risk not paying your debt altogether.
But to avoid falling victim to a debt relief scam, there are a few signs you should check for in a potential company, including:
- Guaranteeing or promising results, even though there are no absolute certainties when it comes to debt relief.
- Debt relief companies demand upfront payment instead of waiting to first secure an agreement with your creditor to ask for fees.
- Advise you to stop communicating with your creditors without any valid explanation and inform you of the possible consequences.
- Debt relief companies reach out to you through email or phone, as most that do this are scammers.
- Demanding your financial information or payment details before agreeing to hire them as your representative.
What Are The Benefits of Debt Relief Programs?
So since you now have a rough idea of everything entailing debt relief, you can proceed to answer one part of why debt relief programs are a great solution to ease your financial stress. Here are some of the benefits you need to know about:
- Helps Your Avoid Bankruptcy
One of the main reasons why you need to avoid debt relief programs is to avoid bankruptcy. This is so despite debt relief companies coming with strings attached for offering you a favourable deal to settle with your creditors. Choosing to work with a debt creditor will indeed negatively affect your credit report, but only for a maximum of seven years.
In contrast, declaring bankruptcy would devastate your credit report because it remains there for much longer, usually 10 years. In addition, you’re required to state whether you’ve filed for bankruptcy before when applying for jobs, loans and credit cards. Therefore, you can see declaring bankruptcy will affect a big part of your life, making debt relief programs a much better option.
- Allows You To Repay Your Debts Faster
Do you want to finish your debt repayment process a lot faster? If yes, then debt relief programs are a great choice because you’ll be able to settle what’s owed to you in two to four years. Other loan repayment methods aren’t this fast, with credit counselling repayment programs, bankruptcy and debt consolidation usually taking between three to five years.
- Avoid Getting Sued For Your Debt
The last thing you want when struggling with debt repayment is to face a lawsuit. And in addition to this, the cost of hiring a lawyer to represent you during these legal proceedings isn’t cheap. Knowing this, you can avoid your debt repayment matter getting to court by getting a debt relief program.
What Are The Downsides of Debt Relief Programs?
Like with any other thing in life, debt relief programs aren’t perfect and do have some drawbacks associated with them. Here’s a look at some of the common downsides of debt relief programs:
- Not Accepted By All Creditors
With that said, not all creditors agree to work with debt relief companies, and they aren’t compelled by law. Therefore, if the creditor disagrees with the approach of the debt relief company, you’ll have tougher financial constraints ahead of you. This is because you still need to pay the debt relief company its due maintenance fees even though they’ll reimburse all your deposits.
After reading this guide, you’re now more knowledgeable whether debt relief programs are worth it. This is because you now know of the benefits and risks associated with it, which will help you make an informed decision.