Debt relief programs are complex and need special attention from both the consumer and the organization that helps you. Living with a large amount of credit card debt is incredibly stressful. Fortunately, debt relief companies offer a solution for getting out of debt. But, how do these organizations work? What do they offer? Let’s break it down.
How Debt Relief Companies Really Work And What They Offer
Debt relief companies can help you create a “get out of debt plan” with strategies and resources to pay off your debt over time. Also, these companies often offer financial education to help you learn about budgeting and effective money management.
Choosing Nonprofit Organizations for Your Debt Relief Needs
Working with nonprofit debt relief companies is more often preferred and recommended. Financial advice received at nonprofit credit counseling organizations is designed in the consumer’s best interest rather than the organization’s profit gain.
How Do Debt Relief Companies Work?
American Consumer Credit Counseling is a reputable nonprofit credit counseling agency with a panel of expert credit counselors. They put in a great deal of effort to deliver the best possible financial counseling service.
Here are a few things that take place when you come to ACCC to take the first steps toward a debt-free future. First, our debt relief counseling specialists will work with you to document your current financial situation. This makes way to identify all the options available to you. These may include social service referrals, educational materials and resources, and a variety of methods for getting rid of debt.
Debt relief companies work with creditors to reduce the amount you owe or the interest rates on loans and credit cards.
The debt relief consolidation plans at ACCC are designed to address the needs of your specific financial situation. Here’s how it works:
- First, we’ll perform a detailed evaluation of your finances, including your debts, expenses, and income.
- Then we’ll help you create a workable budget to pay off your debts, usually within five years.
- Next, in the debt relief consolidation phase, we’ll pool all of your debts, consolidating credit cards, personal loans, and other unsecured debts. You can make one payment to us each month. ACCC will disburse payments to creditors on your behalf.
- We’ll also communicate with your creditors and work for a possible reduction in interest rates on your loans and credit cards, elimination of late fees and over-limit charges, and a reduction in the amount of time it will take to pay off your debts.
Additionally, ACCC offers a broad range of educational resources on our website and through newsletters and self-directed studies. You can learn more about credit card debt consolidation loans, creating budgets, credit scores, and more.
Make Sure you Choose the Best Among Many Debt Relief Companies
There are many companies out there that call themselves “debt relief” or “debt settlement” companies that will tell you they can consolidate your debt. This may sound similar to more reputable organizations such as ACCC. But their methods are more likely to hurt your finances in the long run.
ACCC and other reputable credit counseling agencies have non-profit status while debt settlement companies are for-profit companies. Their fees are often higher than nonprofit credit counseling agencies. Often, settling the debt for less than the principal amount you owe will cause your credit score to drop. Additionally, whatever amount of the debt you don’t pay through settling can be considered income by the IRS, and you can be taxed on it. Although debt settlement companies may offer attractive proposals your financial future may be in danger. If you are planning on buying a home or a vehicle in the future, keeping up your credit score is crucial. This is why you need to think harder before entering into any agreements with debt settlement companies.
Therefore, start your journey to eliminate credit card debt with extensive research. Make a list of the pros and cons of each of the debt relief companies you consider working with. Making sure the company is a reputable nonprofit credit counseling agency could be the determining factor. The incorrect choice will make the difference between successfully paying off your debt and digging yourself into a deeper hole.
How Are Credit Card Settlement Companies Different From Debt Relief Companies
Credit card settlement companies often offer attractive offers to wipe out your consumer debt. However, it’s important to understand the pros and cons of debt settlement and working with credit card settlement companies before you enter a debt settlement process.
With credit card settlement companies you intentionally stop paying your credit card debt. With these companies, you craft a debt relief strategy to erase credit card debt by making a lump sum payment to creditors. In a credit card settlement process, consumers stop paying their monthly credit card bills, sending their accounts into arrears. Once overdue balances become large enough, credit card settlement companies contact the creditors and make an offer to settle the debt with a lump sum payment. Typically, the payment is 25% to 80% of the total amount owed.
There are significant disadvantages to consider before working with debt settlement companies. The fee charged by credit card settlement companies may be as much as 25% of the amount saved. On top of that, you may need to pay taxes on any forgiven debts. This might potentially be another 25% of your savings. Creditors aren’t obligated to accept offers from credit card settlement companies. They may choose to take you to court instead, adding legal fees to your debt totals. And whether your work with credit card settlement companies is successful or not, your credit rating will be severely damaged for years to come.
Given these drawbacks, it’s important to know how to settle with credit card companies most effectively before you begin working with credit card settlement companies.
Your Role In Choosing The Right Path
Choosing credible debt relief companies is your responsibility. “How to become debt-free” may seem like an impossible question to answer when you are in the depths of financial struggle. However, with reputable debt relief companies and qualified professionals, you can come up with a workable debt management plan to secure the health of your financial future.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.