Are Debt Reduction Programs Safe?
- A debt reduction program offers a well-defined process for getting rid of running debt balances. These programs, also called debt management plans, require a complete commitment to stop using debt accounts and pay the existing amounts off in a timely fashion. You must make regular payments according to the rules of the program until it is complete. Debt counseling services and law offices manage these programs on behalf of consumers.
- The Federal Trade Commission warns against some debt reduction programs. Some service providers promise to help you reduce your debt but cannot truly deliver. Some debt management services may tell you to stop paying your creditors, but do not properly inform the creditors of the arrangement beforehand, which can cause problems. In other cases, service providers charge expensive fees for the service that could make the debt problem even worse. To avoid these issues it is wise to focus on programs offered by reputable credit counseling services.
- In some cases, signing up for a debt reduction program can ruin your credit. If a creditor does not recognize the debt management program, the creditor could choose to report missed payments on your credit report or charge off the account, which negatively affects your credit score.
- One alternative to a debt reduction programs is bankruptcy, but this is a last resort move that could completely destroy your credit reputation at least for the next seven to 10 years. You may also qualify for a debt consolidation loan, which combines all of your debt balances into one lower rate account with one payment. As another option, you can directly ask your creditors to negotiate a better deal and payoff plan.
