Debt relief advertisements promise to reduce or even eliminate your credit card debt. For the most part, this claim is true---most legitimate firms offering debt relief or management services will end up saving you money by participating in their program versus dealing with your debt without their assistance. However, achieving these results is not always as simple and easy as the television commercials promise.
Fees are Involved
All businesses and organizations, even nonprofits, need to collect revenue in order to survive. Debt relief firms are no different. While these firms are glad to help you save money through an effective debt management program, they are not offering up their services at no cost. When you enroll in a debt relief program, expect to pay administrative and program fees as well as be asked to make voluntary contributions to the organization. Certainly, assessing fees for services rendered is reasonable, however, take note that you will not only have to service your outstanding debt but also the costs of the program.
Expect a Lengthy Process
When faced with a heaping pile of debt, it can be easy to think that fixing your debt problems via a debt relief program can happen overnight. The reality is that it can take months, or even years, to fully complete the program and pay down your debt. Additionally, when you first enroll in a program, it may take several weeks before you see any progress being made. If you are not prepared to be patient, disciplined and committed to the program for an extended period of time, you will likely have trouble completing the program.
Lifestyle Adjustments
Racking up high credit card bills and finding yourself faced with choosing a debt relief group is often the result of poor financial management, being blindsided by significant expenses or experiencing a loss of income. Whatever the case may be, expect to make lifestyle and spending adjustments to effectively finish the debt relief program. Even if settlements are offered or your interest rates are reduced, you still will need to repay a significant amount of the funds owed. If you have been spending more than you make, you will find this to be difficult. Prepare to establish a budget, reduce entertaining or dining out expenses or even downgrade your living situation to reduce your monthly rent or mortgage bill.
Unfamiliar Tactics
Some people are surprised how debt programs actually function and operate. Debt relief groups, particularly debt settlement groups, often employ tactics that are effective in negotiating down your balances, but may create some discomfort. For example, a debt settlement group will typically suggest that you cease paying your credit card bill in any form to better force the creditor's hand and offer a settlement. Credit counseling agencies will often enroll accounts in their program to obtain the lower interest rate, but note that the card account will have to be closed as part of the program. Generally speaking, if you do not know what to expect, you may find yourself feeling uncomfortable with how the plan is unfolding.
Post-Program Consequences
If you have successfully completed the program, you may find yourself debt-free. However, you may also find there are some not-so-inspiring items you are facing. If you retained a debt settlement group to help you negotiate lower balances, you may find your credit report is mired with charge-off comments. These can remain on your credit report for several years and severely hinder your ability to obtain financing on favorable terms. Additionally, you may also be liable to pay income tax on the amount of debt that was canceled or forgiven as part of the charge-off settlement. If you complete a credit counseling program, you may have had to close all of your credit accounts and may now be faced with rebuilding your credit.
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