Problems with Debt Elimination

Debt relief is a completely different concept than debt elimination. Each year, countless consumers are lured into believing that debt elimination will solve all their credit woes, only to find that they have been scammed out of money they could have put into actually paying down their debt. Consumers approached by debt elimination companies should instead investigate their options for debt relief.

Debt Elimination

Debt elimination companies tell people with high debt that they have access to paperwork that will force their creditors to make their debt go away. These companies use the explanation that the credit system contains loopholes, which the paperwork is meant to take advantage of. Although a debt elimination company may make a lot of promises to attack your debt in a variety of different ways, according to the Better Business Bureau, all debt elimination companies make their promises on the basis that credit lines are illegal.

Problems

Most people have never heard of a document that proves credit lines are illegal, and that's because this document doesn't actually exist. Rather than drawing you out of debt, debt elimination companies actually drown you with large up-front fees, and when the debt doesn't magically disappear, consumers find themselves with more debt in the end.

Credit Score

Those who choose to use a debt elimination company may end up with more debt and, in turn, increasing their credit utilization ratio, which is one of the biggest factors in determining your credit score. Consumers who stop making monthly payments to their debt will see an even bigger negative impact on their credit score, as creditors will report the delinquency to the credit bureaus. With promises of debt elimination, consumers expect their credit scores to bounce back once their balances have disappeared; however, they will see no reduction in their debt, which will result in further pressure on their credit scores.

Considerations

Instead of putting money into a so-called debt solution that doesn't work, consider using a reputable credit counseling company. With the help of a credit counselor, you will develop a budget and get to the root of your financial problems so that you don't make the same mistakes in the future. In addition, if you have defaulted on payments in the past and you're having trouble making the minimums each month, your counselor may put you on a debt management program, DMP, in which the counselor works with your creditors to lower your interest rates or payoff balances. Find a reliable credit counseling company through the National Foundation for Credit Counseling website, which is recognized by the Federal Trade Commission.