If you are in financial trouble, you are probably looking for a counseling service to help you. However, people often confuse reputable credit counseling services with a debt reduction service.
Our credit counseling advice is to avoid a debt reduction service.
What is a Debt Reduction Service:
This type of service is oriented toward negotiating a lump-sum settlement with a consumer’s creditors. By contrast, an approved credit counseling agency’s mission is to provide debt management advice. They also provide effective debt management programs for consumers to pay off their existing debt and get their finances in order.
The biggest benefit of a debt reduction service is that you can pay off your debt quickly. This is given that you have enough money on hand to cover the settlement. Otherwise, the disadvantages can outweigh the advantages. Let’s look at some of these disadvantages.
Disadvantages of a Debt Reduction Service:
Many people who use a debt reduction service are desperate and are probably unaware of the alternatives.
There are several dangers of settling debts this way:
- Fraud is common. This is because some debt-settlement companies are scams. Also, some lack the experience to negotiate effective deals.
- Failing to pay your bills on time destroys your credit scores. So, settling a debt for less than your balance causes further damage.
- The Internal Revenue Service taxes you on the difference between what you owe and the amount you pay in a settlement. That causes additional financial problems for most debtors.
- The fees for debt settlement are high, often ranging from 14% to 18% of the total debt you want to settle. Consolidated credit counseling is a much more affordable alternative.
- Settlements take an average of two years to complete. There is a chance of the creditors suing you for balances that are unpaid.
So a debt reduction service might provide a temporary fix to your financial problems. But the amount of money you contribute is much higher than other debt assistance programs. The consequences of utilizing a debt reduction service can be painful and inflict a larger, deeper wound on your financial future. The best alternative is to seek debt consolidation relief that educates you on how to manage your money and develops effective solutions for ending your debt cycles.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.
