Weighing the Pros and Cons of Debt Relief Programs

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Oct 13, 2024

Weighing the Pros and Cons of Debt Relief Programs

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If you are struggling with debt and don't know how to manage it, consider looking into debt relief programs. No matter your situation, there are options — you just need to figure out what will work for you. If you are looking into debt relief programs here, we are going to discuss their pros and cons, so if you are interested, keep on reading!

In this article

Debt relief programs

First things first, debt relief companies work by helping you reduce your debt by negotiating with your creditors on your behalf. They can also help by changing payment terms and sometimes even clearing some of the debt owed.

It is crucial to do your research into debt relief programs/companies because there is always a catch. Some of the plans these companies offer may leave you with substantial fees and even damage your credit score.

So, let's take a closer look at what these companies do, how they actually work, and what their advantages and disadvantages are.

Debt management

There are two ways you can go with it when it comes to debt management: taking care of it yourself or going with a debt relief company. The point of debt management is to use tools that are available to you so you can clear your debts.

Do-it-yourself debt management

Since we are here to talk about the pros and cons, let's go with the most obvious benefit first. DIY debt management comes at no cost to you, so there are no fees. If you can manage negotiating with creditors, have a handle on your spending habits, and stick to them, this may be the way to go for you.

However, the main drawback of this debt management method is that most people lack experience in dealing with this sort of thing. Let's face it — being inexperienced can lead to some awful situations where you can be taken advantage of if you are not careful.

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Credit counseling companies

Credit counseling companies are a budget-friendly option that can help you take control of your debt. These companies work by pairing you up with a credit counselor who will then help you create a debt management plan, which will enable you to make monthly payments to eliminate your debt.

So obviously, the pros are that you will have a knowledgeable person guiding you and helping you get some debt relief, the once-a-month payment makes things easy and organized, it is low cost, and it is possible to lower your interest rates.

However, on the flip side, there are hidden fees, or the company may press you to donate to their charities because a large portion of these credit counseling companies are non-profit organizations. There is also the chance that this may impact your credit score because it will be added as a note to your credit report.

Debt consolidation

If you need some debt relief, you may want to consider debt consolidation. If you didn't know, debt consolidation means that you put all your debts into one payment using some kind of loan. You can choose from various options like a balance credit card, personal loan, home equity loan, 401k loan, or home equity line of credit.

The positives of debt consolidation are, depending on your consolidation method, that you can get no interest for a period of time on your monthly payments and a fixed payment plan that can help if you need to be more organized with your finances. Plus, you won't be dealing with a lot of small payments; you will be dealing with just one payment a month that will go towards freeing yourself from debt.

The negatives of this method are simple: debt consolidation itself will not go on your credit report, but whatever approach you take will. This means that whatever you do, debt consolidation will affect your credit score. It is, after all, just another loan that you have to make payments on.

Debt Management Simplified

Millions struggle with debt. We help them move on with their lives.

End your debt stress with a proven, affordable debt relief program. Our consultants will guide you through every step.
Everyone’s financial situation is different. That’s why we start by giving you a free debt analysis and create a custom solution based on your unique needs and goals.
Let us help you solve your debt problems and move forward with improving your overall financial health.

Not available in CO, HI, ND, OR, RI, VT, WA, WV, WY, MN, DE, IA.

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Debt settlement

If none of the other options seem like a good idea for your situation, looking into debt settlement may be the best. You can negotiate your own debt settlement, but it is better if you look into debt settlement companies. Not only will they negotiate for you, but they are also experienced in doing so and will get you the best possible outcome.

Debt settlement works through negotiation between the loan provider and the loan recipient. Generally, the outcome of this is a large, one-time payment towards your debt. Once that payment is made, the remaining debt is typically forgiven. Debt settlement is best used when you cannot keep up with payments on unsecured debts like medical bills, student loans, credit card debt, etc.

So, what are the pros and cons? Well, let's start with the good. Debt settlement can bring you much relief because, as we mentioned, you can make just one payment toward your debt. Usually, up to 50% of your debt and the rest of it will be forgiven, and you won't have to worry about making payments for however long it would've taken otherwise.

That said, there are plenty of cons as well when it comes to debt settlement and debt management in general. If you choose to go with a company, make sure it is legitimate because scammers are posing as debt management companies.

There are more drawbacks to debt relief programs. Firstly, any debt management payment will go on your credit report for seven years. This means it will definitely affect your credit score and your ability to get loans, as well as low interest rates. Secondly, you will need a large sum of cash to pay whatever settlement you or your debt management company reach. Thirdly, you may have to pay taxes for the forgiven debt. Lastly, when you settle with a credit card company, you risk your account being closed when the settlement is finalized. This means that you may end up with no credit line and be unable to make purchases with a credit card.

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