Debt Relief

By Holly Swanson

For millions of Americans who have spent past a managable limit on their credit cards, debt relief may be the solution to getting their finances back on track.

The Path to Debt Relief

There are almost as many ways to find debt relief as there are credit card offers coming to your door. Each has their benefits and drawbacks so it's important that you carefully investigate each program before committing.

Credit Counseling

Working with a consumer credit counseling service may be just the ticket you need to get yourself out of a credit hole. This organization will work with your credit card companies to put a stop to your increasing debt load while planning out an affordable way for you to pay off the debt. Although credit counselors have several ways of helping you find debt relief, they typically allow consumers to make one consolidated monthly payment. This payment goes directly to the credit counselor, who will then use that fee to pay the creditors. This makes it a lot easier for consumers to understand exactly what they need to do each month and prevents the debt from continuing to grow because of late fees and high interest rates.

Some credit counselors charge a fee for their services, while others receive their funding from credit card companies. Make sure you discuss fees early on with your credit counselor so you are not surprised by extra fees later.

Debt Consolidation

A debt consolidation program is one of the many options that credit counselors may use to help get their clients out of debt. By negotiating lower payment and interest rate options, consumers can pay off their debt sooner and avoid bankruptcy. Many consumers use debt consolidation on their own by contacting their credit card companies directly rather than using a third party.

Debt Settlement

Considered riskier than most other debt relief options, debt settlement plans attempt to force credit card lenders to negotiate lower repayment plans. After you set up a payment plan with a third party mediating on your behalf, you will make monthly payments into an account held by the counselor. The mediator will hold the money while continuing to negotiate with your creditors, threatening to not give them any money at all. In theory, the creditor will eventually give in and accept a lower repayment rather no payment.

Although this can save you a lot of money, it can be risky. Since your money is sitting in an account, rather than going toward your debt, you may accumulate late fees and missed payments will appear on your credit report. Since there is no guarantee that your credit card companies will agree to the lower payoff amount, you could make your debt worse and ruin your credit at the same time.

Credit Relief Scams

Since getting out of credit card debt can be an intimidating and costly venture, it's important to educate yourself about options and the companies that can help you reach financial freedom. Recently, several scams have taken advantage of people looking to improve their financial situation. These unscrupulous companies charge high fees and make promises they can't deliver, leaving the consumer in more financial trouble than before.

Since you will need to share your private financial information with anyone who will be working on your behalf for debt relief, make sure the company is reputable and is in business to help the consumer. Before agreeing to any program, find out:

How they get paid. If the company charges high fees to the person seeking help with their debt, it may be a scam. Most reputable credit counseling services are non-profit or are funded by financial organizations.

If they are approved. The U.S. Trustee Program offers a list of approved consumer credit counselors.

What your options are. A company that has your debt relief interests in mind should offer you more than one plan to help eliminate your debt. If the organization is pushing you toward just one option, they might be scamming you into filing for bankruptcy while charging you the filing fees.

The pursuit of debt relief is a worthwhile venture: just do thorough research to find the method right for your goals.