Debt is more the norm nowadays than it is the exception. Most Americans are dealing with some combination of the following: student loans, credit card balances, mortgages, auto loans, personal loans and medical bills. In fact, not even counting mortgages, the average American is currently saddled with about $38,000 in consumer debt. CNBC also reports that two in 10 Americans spend 50 to 100 percent of their income every month on debt repayment alone.
When you consider many U.S. consumers must devote a substantial amount of each paycheck to try to tackle their debt—or at least stay afloat by paying the minimums due—then it’s easy to understand why so many people are searching for a better solution. Staying stuck in a cycle of owing thousands isn’t something you want to do for too long, as it can tarnish your credit and cause you lots of undue stress.
But filing for bankruptcy seems so drastic, as it can cost thousands in court fees and require you to forfeit some of your assets. You’ll also retain the mark on your credit score for 10 years to come. Isn’t there something in between struggling to repay debt on your own and declaring bankruptcy?
There is: Debt relief. While there are no guarantees in the world of debt, many consumers have experienced positive results sticking with a debt relief program. Here are a few things to consider when you’re choosing said program.
What Is Debt Relief?
Debt relief, also known as debt settlement, is a strategy that aims to reduce how much enrollees owe by negotiating with creditors. When creditors believe they’re at risk of getting no or little payment as is, they’ll often agree to accept a percentage of the original balance if it’s paid in a timely manner. The thought process here is that something is better than nothing.
Here’s why some consumers find it advantageous to work with a debt relief program rather than alone, according to Freedom Debt Relief, an organization that’s resolved over $9 billion in debt:
- Debt programs offer access to trained negotiators, alleviating the need for individuals to haggle with creditors directly—something many people find to be intimidating or a hassle.
- Reputable debt relief companies may have already built up working relationships with certain creditors, giving them more leverage in negotiation situations.
- Enrolling in a debt relief program holds consumers accountable for keeping up on payments, something that can be difficult to organize on their own.
- Debt settlement companies can work with enrollees on how to deal with creditors in the meantime. While they can’t stop collection calls, they can help consumers understand their rights and come up with a realistic timeline for reaching “the light at the end of the tunnel.”
Read the Fine Print Before Signing Up
Like any option for getting rid of debt, consumers should know what they’re getting into before enrolling. During debt settlement, you’ll be responsible for making consistent monthly payments into a special account; money you’ll later use to negotiate. The process usually takes 24 to 48 months but can go longer—missing payments during this time will derail your progress.
There’s no magical way to stop creditors from contact you, either. Any time you cease making payments to collectors, there’s a good chance they’ll be reaching out incessantly. What debt relief can do is give you a realistic plan and timeline for repayment if you stick to the terms.
You’ll also pay a fee per debt settled, although reputable partners will never ask for money up front.
Legitimacy Check: Look for Red Flags
Finding the right program means vetting a program’s track record. It’s important to avoid red flags like these:
- Asking for payment before debts are settled
- Guaranteeing results or promises a certain percentage settlement
- Alleging it can stop collection calls and lawsuits
Choosing a debt relief program is an important matter. Do your research and understand what you’re getting into before you leap.
To read more on topics like this, check out the finances category.