Learn About Debt Relief: What It Is And When You Should Seek It

What to Know Before You Apply for Debt Relief

Debt reduction programs can assist you in reducing your debt burden. However, it is a decision that must be made with caution. It is not a flawless solution, and there may be some significant trade-offs to be made. Here are three crucial things to consider before beginning debt relief.

Interest

Credit card debt relief can be obtained through debt consolidation loans or lines of credit, as well as a 0% balance transfer offer. However, consider the expense. Consolidating debt should result in a cheaper interest rate. With a reduced APR, more of your monthly payment goes toward the principal, allowing you to pay off your debt faster.

You also pay less interest over the course of your repayment. If you’re wondering how to consolidate debt, examine the rates you might be able to get based on your credit score.

If you’re interested in anything like a debt management plan, ask if a rate decrease is an option when negotiating repayment arrangements.

Fees

Some debt relief alternatives may have costs, which should be considered when determining whether the expense is worthwhile. Credit counselors, for example, may or may not charge a fee to assist you in developing a budget and spending plan.

There are loan origination costs and prepayment penalties to be aware of when it comes to debt consolidation loans. You may be charged a balance transfer fee if you use a 0% APR balance transfer credit card to consolidate debt.

If you want to join a debt management plan, you may have to pay a monthly charge. Companies that negotiate debt settlement might also charge a fee for their services, ranging from 15% to 25% of the amount resolved or forgiven.

Because fees can increase to the total amount owed, it’s critical to understand what you’re paying upfront and how it can pile up over time.

Scams

When looking for debt relief services, whether credit counseling, a debt management plan or debt forgiveness, be sure the company you’re working with is legitimate. Otherwise, you risk being a victim of debt relief fraud.

You should also be aware of the distinctions between debt consolidation, debt management plans, and debt settlement, as discussed above. Unless you read or listen attentively, not all debt relief services use these terms enough for you to comprehend what you’re getting into.

When comparing debt relief businesses, keep the following red flags in mind:

• Fee demands that must be met before services can be provided;

• a lack of openness in clarifying what the company does or delivers;

• requests for access to personal or banking information; and

• promises or guarantees that appear too good to be true.

The Consumer Financial Protection Bureau (CFPB) records consumer complaints against debt consolidation companies and other financial service providers.

You can use the database, in conjunction with the Better Business Bureau, to confirm a company’s reputation.