Understanding Debt Reduction Options
It seems like so many people are struggling with debt in today’s society and are looking for help to reduce or get rid of their debt.
Unfortunately, many consumers don’t understand the various ways there are to pay off debt, or they sign up with companies that don’t fulfill their promises of quick debt reduction.
There are some important things to look for when choosing a method and a company to help you pay off or manage your debt.
The first thing to understand is that there is no quick fix to get rid of debt. There is also no way to legally remove from your credit report debt that you incurred. Be wary of any company that promises to quickly eliminate your debt or remove valid, outstanding debts from your credit report.
There are many terms associated with debt reduction that people tend to use interchangeably, but they are all very different.
A Debt Management Plan, or DMP, is a debt repayment program managed by a credit counseling agency. The credit counseling agency will negotiate lower interest rates and/or monthly payments with your creditors. In turn, you will submit one payment to the credit counseling agency, and the agency will disperse the payment to your creditors. It is important to note that you cannot use credit cards or take out personal loans while you are on a DMP.
A debt consolidation loan is a single loan you take out to pay off your creditors. With this option, you are simply moving all of your debt from several accounts to one account. This is not the same as a debt management plan.
Debt settlement is a process where you, or an attorney working on your behalf, negotiate a payoff amount with your creditors to eliminate your debt. Commonly, the entire payment must be made at one time. Often regular monthly payments are not made while the client is enrolled with a debt settlement company and is saving up their payoff amount, which could result in negative items on your credit report and a lower credit score.
Which debt repayment option is best for you is dependent upon your individual situation. It is important that you research and understand all of the options available to you and that you understand the benefits and pitfalls to all of the options.
Before choosing any credit counseling agency or other debt relief agency, research the company with your local Better Business Bureau and your state Attorney General’s office.
Educating yourself about your options and the agency you are working with is the best way to ensure you successfully pay off your debt and start a fresh financial future.
Kristen Garrett is the public relations coordinator for Advantage Credit Counseling Service, a 501(c)(3) non-profit community agency based in Pittsburgh, Pa. http://advantageccs.org
Add comment March 20th, 2008
