What Are Debt Relief Companies?

When borrowers can not longer make the necessary debt payments on their liabilities, such as mortgages, auto loans and credit card debts, they have several options. First, they can do nothing and allow the accounts to go into default. This tends to lead to foreclosures and lawsuits as creditors try to claim what they are owed. However, borrowers also have several options to negotiate with creditors and come to an arrangement that either removes the debt permanently or arranges for an easier payment system. This is known generally as debt relief, and there are many companies that offer debt relief services to such worried borrowers.

Debt Counseling Companies

Debt counseling companies are very common. These organizations are typically nonprofit and work with a borrower to examine debt options and create budgets to help remove debt and prepare for future spending. These counseling services can offer good advice and are often a good idea. Because they are nonprofits that often work with state or local plans, they often do not charge for any of their services, or charge only a small fee, which makes it much easier to trust counseling services. In most cases, some counseling is required before borrowers file for a Chapter 7 bankruptcy.

Debt Management Companies

Debt management is a general term for restructuring or modifying a loan to make it easier to pay off. The borrower still has to make payments, but the lender agrees to make the loan current again and lower interest rates or delay payments to make it easier for the borrower to recover. Debt management companies can be scams, charging high fees for very little or no actual services. Borrowers should keep in mind that they can contact creditors directly for modification and do not need representation, especially by someone other than an attorney.

Debt Settlement Companies

Debt settlement companies work with borrowers to reach an agreement with creditors where the borrower pays off a portion of the loan --- for example, 25 to 30 percent --- in a short installment plan, and the creditor forgives the rest of the debt. These companies are most well-known for scams and unethical activities, such as charging high up-front fees or requiring borrowers to make payments to them rather than the creditor. These companies may also not help stop collection calls or help the borrower's situation at all.

Debt Relief Programs

Debt relief programs are programs offered by federal or state governments to help borrowers seek particular types of loan modification or make debt settlement less costly. Because these programs are created through specific legislation and have direct aims to support borrowers, they are some of the most trustworthy debt relief options. The organizations that manage these plans range from state to state but can usually be found by visiting state websites or consulting debt relief sites managed by the federal government.