Do Debt Relief Programs Actually Work Out?

Debt relief programs do work out.  However, you need to be extra careful of scammers in the industry out to milk your last cash. Also, before you can sign up for a company, find out how much they charge and how they’ll help you with your debts. 

How the Debt Relief Programs Work

Debt relief companies come in handy to offer you the breathing room you need to make progress on your debt payments.  One advantage of working with a debt relief program is that the company can negotiate for you to pay less than you initially owed. Also, you may pay a lower single monthly payment.  Before the company can start negotiating with your creditors, they ask you to stop paying your debts. Instead, you’re to make monthly deposits in an account the company sets up for you. When the savings get to a particular amount, the company approaches your creditors and offers partial payment for your debts.  The negotiations come with an implication that you may file for bankruptcy, and the creditors won’t get anything.  If the negotiations are successful, your creditors allow you to pay a fraction of what you owe. In addition, the debt relief company keeps a percentage of the settled debt as payment.  The company can also charge fees for managing your savings account. 

What Are the Cons of a Debt Relief Program?

While debt relief programs do work, they also come with their cons.  For instance, the companies charge high fees, and some are hidden. The company will take a percentage of your total debt (between 15 to 25%) as payment. Additionally, some companies may not be clear on how much of your monthly savings go to debt repayment and how much goes to fees.  Additionally, some debt relief companies may require loan insurance.  If you’re forgiven or pay a debt of more than $600, it’ll be treated as taxable income, and you have to pay the taxes.  Irrespective of what the company promises, you have no guarantee your debt will be reduced. Your creditors are under no obligation to negotiate with the debt relief company. Since you stopped paying your debt and started saving in an account in the company, the debt continues to get more fees and penalties.  Thus, you may end up with more to pay than before.  

Identifying a Scam Debt Relief Program 

Working with a debt relief program is risky as you don’t have a guarantee of positive results. Also, there’re a lot of scammers in the industry. If you’re not careful, you might be swindled your money.  To identify scammers, be wary of companies that guarantee or promise results. Since your creditors are under no obligation to negotiate, you’re not guaranteed any results.  Scammers can also ask for money upfront, contact you by phone, or advise you to stop communicating with your creditors without informing you of the consequences. 

Is Investing in a Debt Relief Program Worth It?

Investing in a debt relief program can be worth it if it succeeds in negotiating a payment plan for your debts.  However, you have no guarantee that your creditors will cooperate.  If you stop paying your debts while awaiting a payment plan negotiation, your debt continues to accrue interests and other penalties. Thus, you end up with bigger debts to pay.  Furthermore, you can negotiate with your creditors for a payment plan without paying the hefty monthly fees of a debt relief company. The forgiven debt can also be regarded as taxable income, boosting your tax bill.  Learn more about debt relief programs and how they work here