Does Debt Relief Really Help?

With so many Americans in credit card debt, it's no surprise that debt relief companies are seemingly everywhere. An endless stream of companies advertise services, claiming they can help you with your debt. However, it's hard to know which companies are reputable, and it's even harder to tell if debt relief will do what it advertises.

Types of Debt Relief

If you're in credit card debt, you have a variety of options available to help. These options come in different lengths and levels of acceptance; they also come in varying levels of success and risk. The main types of debt relief are debt consolidation, debt management and debt settlement.

Debt Consolidation

Debt consolidation involves taking out a loan, usually a home equity loan or a personal loan, to pay off your credit cards or other debts. This practice is offered by most banks, and the goal is to get a better rate than your credit cards so you can save money. While this sounds like a good idea in theory, it can become much more difficult in reality. Because you're just shifting debt from one type to another, you're not realizing any true reduction in overall debt. Furthermore, since your credit cards will remain open, you're at risk of running your cards back up, which would double your debt load and hurt your credit score.

Debt Management

Debt management programs aim to give you lower interest rates and get you out of credit card debt within five years. Debt management programs are offered by credit counseling agencies and are often owned by credit card companies, which are willing to offer concessions if it means getting paid. A condition of being on a debt management program is that you cannot use your credit cards and cannot apply for new credit while on the program; another negative is the high percentage of customers who drop out of the program before completion. If you stick with the program, though, debt management is a safe and legitimate way to get out of debt, even if it might take longer than you'd like.

Debt Settlement

Debt settlement groups have grown in popularity in recent years, largely because they offer an enticing package -- namely, the option to settle your debt for less than what you owe. Doing this can save you money and get you out of debt quickly. However, the price you'll pay is high. Almost all debt settlement programs require you to stop making credit card payments in order to build leverage with your creditors, damaging your credit in the process. Furthermore, missing your payments means constant duress from collectors; it also puts you at risk of lawsuits and wage garnishment.