Debt relief is a way of reducing the amount that you owe. It can be applied to a variety of different types of debt, including credit cards, medical bills and loans. In some cases, debt relief can also be used to help you avoid filing for bankruptcy.
Some of the most common debt relief options include debt settlement, bankruptcy and credit counseling. They all have their pros and cons, so it’s important to understand them before you decide what method is right for you.
Settlement, by definition, involves negotiating with your creditors to reduce your debt. This can be a good option if you have high interest rates and are struggling to make your payments.
While settlement can help you get out of debt faster, it can also cause your credit score to decrease. This is a big concern for many people, especially those with poor credit.
If you have poor credit, debt settlement could be a risky choice, according to the Consumer Financial Protection Bureau (CFPB). It may leave you deeper in debt than when you started, and it can be costly.
Bankruptcy, on the other hand, can be an excellent debt-relief solution if you are eligible for it and it’s right for you. In bankruptcy, your creditors won’t be able to collect any money from you unless they agree to negotiate with you.
However, it can have a negative impact on your credit report and affect your ability to obtain other forms of financing. It can also raise your tax bill.
Other cons of debt settlement include the fact that it may not lower your interest rate, and it could cost you more than you save. This is because the companies that offer this service typically charge fees between 15% and 25% of your enrolled debt.
It’s a big risk to try debt settlement because it can take three to four years to complete and there’s a risk that you will have more credit card debt after you’ve completed the process. If you don’t make payments on the debts you’ve settled, your creditors may file lawsuits against you.
Another con is that some debt settlement companies can be scams. They often cheat consumers with high fees and never deliver on their promises, according to the National Consumer Law Center.
You can find out if a company is reputable by looking for the American Fair Credit Council’s rating and checking the company’s website. The NCLC helps educate federal and state officials about abuses in the debt relief industry and works to develop better consumer protections.
Among the best-known and most reliable debt relief companies are DMB Financial and National Debt Relief. Both of these companies claim to get you out of debt in 24 to 48 months and offer a 100% money-back refund promise.
DMB Financial is a member of the American Fair Credit Council and its website posts real-time results that show how much their clients are paying back each month. The company also claims that they can help you become 100 percent debt-free in 36 months.