Debt relief is one of the most overused terms in financial arenas today. Almost everyone has some sort of debt, and not all of it is necessarily bad. However, when does does become a burden, most people will consider almost anything to get out from under that load.
What is Debt Relief?
Debt relief is any type of service or program that helps you deal with your debt in a way that lessens the impact of being in debt. That's a pretty big statement, and it includes a lot of providers.
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With so many different types of debt relief providers, it can be difficult to know who to trust. That's why you should first begin with the type of debt relief, and then consider the record of the provider.
Types of Debt Relief
Debt settlement is a means for negotiating a lower payoff on your debt. It often includes delaying periodic payments so that the debt goes into default. The idea is that a panicked creditor will be more willing to accept a smaller payoff.
The reality is that while debt settlement might work on one debt, it rarely works when you have several. In addition, larger debts are harder to save for and could take years to reach an approved offer. In many cases, a judgment comes before you are able to settle.
Debt settlement companies offer to help you with this process. According to NY Attorney General Andrew Cuomo, these companies represent a "rogue industry" and do more harm than good. Their fees alone can offset much of your savings, with additional income tax liabilities eroding much of the rest.
Bankruptcy attorneys also tout bankruptcy as a form of debt relief. It is true that bankruptcy can be one solution to provide protection from creditors. For some debtors, they are better off taking that route since their financial situation has deteriorated to the point that they are hopelessly insolvent. For others, they may not quite be at that point yet.
Credit counseling is another form of debt relief. Clients that qualify may be able to benefit from the lower interest rates and lower minimum payments that frequently are available through a debt management program. Both nonprofit charities and for-profit debt management companies provide these services, although substantial differences exist in these programs. The quality of counseling is the most notable difference.
Once you have determined what type of debt relief you think might benefit you the most, research the providers that serve you. Find out if they are for-profit or if they have nonprofit status. True nonprofit charities will serve your interests rather than a profit motive. For-profit companies tend to serve their own interests first.
Also, make sure that they are a reputable organization. An "A" or "A+" rating with the Better Business Bureau is a must. Any organization that fails to maintain a positive file with the BBB likely has substantial challenges that prevent it from providing a quality service.
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