Pro & Cons of Debt Elimination
According to CreditCards.com, America's personal debt problem is growing. Each American family owes more than $15,000 dollars in credit card debt alone. It says that America's combined consumer debt was $2.44 billion dollars as of April 2010, $838 billion of which was credit card debt. With mounting debt and spending nearly out of control, some consumers have looked to debt elimination and settlement plans. Although these hold many advantages, consumers need to be sure they are getting an accurate picture of what is offered.
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Function
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Debt elimination and debt settlement can help you gain control of your finances, create a livable budget and gradually begin the process of eliminating your debt. The downside of several debt elimination and settlement companies is that they are not completely honest when they make their promises. According to MSN Money, complaints against debt elimination, settlement and credit counseling organizations has risen by 19%. Some of the possible reasons are hidden fees and unreasonable claims. Some debt elimination companies factor in a fee of up to 10% of your entire balance owed. MSN Money also says that common claims of 60 to 70 percent debt reduction are likely not possible.
Considerations
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According to SmartMoney.com, consumers should consider avoiding debt elimination and debt settlement plans. Hefty fees can actually increase the total amount of debt and lower your credit score. It also states that many banks and credit lending institutions will not work with debt settlement companies because they encourage nonpayment of bills in hopes of a future settlement. Finally, in most cases debt settlement companies cannot do any more for you that you can accomplish on your own. Gail Cunningham from the National Foundation for Credit Counseling states that most creditors will not offer any more advantages to debt elimination agencies than they would offer directly to the consumer.
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Misconceptions
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Several disreputable companies are out there, ready to take advantage of your vulnerable financial status. However, a few reputable credit counseling, debt settlement and debt elimination companies do exist. Consumer credit counseling services advise you to look for the following elements before choosing a debt elimination or settlement company. First, check to see if it is a member of the National Foundation for Credit Counseling. The NFCC is a nonprofit credit counseling agency, funded in part by creditors. It offers a list of agencies that it deems reliable and honest. Second, make sure you have an assigned counselor, a detailed budget and an agreement in writing. You also need contact details and should be able to contact your counselor directly. Ask for an end date, and you should expect follow-up sessions. Finally, even reputable agencies may charge fees, but they should be nominal. Furthermore, services should not be denied if you cannot afford the fees. Any agency that refuses services or denies you answers to your questions should be avoided.
Limitations
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Reputable debt elimination and debt settlement companies can only do so much for you. Typically, they will create a budget for you and even contact your creditors. They may be able to negotiate a better rate of interest and freeze late fees, but this is never guaranteed. Even if all of this is achieved, the majority of the work is going to be left to you. Debt elimination takes time and discipline. You need to get your spending under control and stick to your budget. Debt elimination can take years but once your free, it will likely be worth the sacrifices.
Alternatives
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You may have better options than debt elimination and settlement companies. You may want to try asking for a loan modification. Several creditors have become far more flexible with their terms. You'll still pay your debt but with lower interest and penalties. You also won't harm your credit score. If your credit isn't too severely damaged, you may want to consider debt consolidation. Credit unions and banks tend to offer better rates of interest than credit card companies. You also have a fixed term and an end date to the agreement.
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