Debt Relief Programs Pros & Cons

Many people find themselves in debt at one point or another. For some, debt becomes unmanageable, and making payments on time--or even at all--becomes impossible. A number of debt relief programs exist that can help you deal with debt. While this may sound like an ideal solution, there are downsides to consider.

Pro: Avoid Bankruptcy

If you are looking into debt relief programs, chances are you're in dire straits. You may even be on the verge of bankruptcy. Bankruptcy will have a long-term negative impact on your credit, and obtaining additional credit in the future may be impossible. After a complete analysis of your situation, debt relief companies will be able to recommend the best course of action for your situation and will often be able to save you from having to file for bankruptcy.

Pro: End Harassment

Harassing calls and letters from lenders and collection agencies can be a traumatic experience. You may find yourself avoiding phone calls for fear that it may be another collections call. Agencies may threaten you with legal action if you do not pay. This is especially scary in situations where you cannot raise enough money to make even the minimum payments each month. Debt relief programs may allow you to negotiate settlements with collection agencies. Other options include a debt relief agency paying your debts off for you and you paying it a single monthly payment, or alternately it pays your creditors monthly while you send it a single monthly. Either plan can end harassing phone calls immediately.

Pro: Cut Interest Payments

Consolidating your debts with a debt relief agency may save you money in the long run. Rather than having to make interest payments to each of your creditors each month, you can pay a lower interest rate as a part of your monthly payment to the debt relief company. Due to penalties from missed or late payments, your interest rates may be high. Debt relief programs may lead to substantially reduced rates, relieving your financial burden significantly.

Con: Hurts Credit

Enrolling in a debt relief program hurts your credit by both lowering your credit score and putting a note on your credit report stating that you are receiving assistance from the program. This note does not look good, as it may cause creditors to think that you are irresponsible and cannot manage your finances on your own. The impact may be so heavy that you may be unable to obtain any sort of credit for the period in which you are enrolled in the debt relief program. Depending on the amount of debt you are in, this may take several years.