Debt Relief Programs


Getting into debt is easy. However, as mortgage interest rates rise, credit card late fees mount, and the economy remains in doubt, millions of people are finding it more and more difficult to meet their financial obligations. Unfortunately, lenders continue to offer credit to people who are in desperate need of help, which only exacerbates the problem, and can seriously add to a person's debt-load.
Thankfully, if you find yourself in this situation, there are a number of options available. Credit Counseling, Debt Consolidation, Debt Settlement, Debt Management, and (as a last resort) Bankruptcy are just a few avenues you can pursue.

1. Credit Counseling

Credit counseling is a process whereby a consumer is advised on ways to handle their current debt-load. Typically a credit counselor will assist an individual in ascertaining how much they owe and to whom. Credit counseling's overarching goal is usually to act a type of "credit school" whereby the consumer is educated on their debts and their impact on the financial world. A credit counselor will typically interview an individual in order to create a debt-reduction strategy and budget that best matches that person's situation and needs.

In some instances, credit counseling might involve the creation of a Debt Management Plan (DMP). The counselor will negotiate with your creditors on your behalf to help receive lower interest rates, fees, and sometimes writing off part of the principle balance. The end result is a more manageable monthly payment. When speaking with a credit counseling professional, be sure to inquire as to what benefits you can gain from their services. You can learn more about DMPs later on in this article.

2. Debt consolidation

The goal of debt consolidation is simple: a consumer takes out one big loan in order to pay off other outstanding debts. This is usually done in order to secure a lower and/or fixed interest rate, plus the convenience of only servicing a single loan.

Debt consolidation loans work in several ways. Sometimes one can simply transfer existing unsecured debts into an unsecured loan. However, more often the loan is secured against some form of collateral that the borrower owns such as a house or automobile. Collateralization typically allows a creditor to offer a lower interest rate because their risk is reduced. In some cases, such as when the debtor is facing bankruptcy, a debt consolidation company can buy off your existing debts at a reduced price and then pass some of the savings along to the borrower.

In most cases, debt consolidation is a good idea is when the debtor is facing high interest charges usually stemming from credit cards. Usually, even unsecured consolidation loans will typically have a lower interest rate than these cards. But, by using collateral, a borrower may obtain a secured loan which offer even lower interest rates and further savings to the borrower, which can help pay down the principle balance sooner.

Theoretically, a company could charge exorbitant fees (often near the state maximum) for their services or wait until the borrower is teetering on the brink of insolvency and they have to refinance. A desperate client, facing the possibility of losing their house and other possessions, will often have no choice but to pay these fees. This practice is known as "predatory lending" and while it is not the norm, anyone considering a debt consolidation loan is advised to do their research and shop around for a reputable company with the best solution.

3. Debt Settlement

Debt settlement is often sought when the borrower is facing the prospect of bankruptcy and the creditors and lenders want to try to recoup some of their money. Debt settlement is, for the lender, often a solution of last resort. While debt settlement is an entirely legal solution for consumers seeking an answer in lieu of bankruptcy, most lenders will not tell you about in the hope that you will find a way to pay them the full amount. In a typical debt settlement agreement, the creditor writes off a portion of the outstanding debt (usually about 40-60%); thus, the remaining balance is significantly reduced allowing the borrower to pay it off much more quickly.

Naturally, debt settlement can be a complicated process and it is important to know the inherent risks involved before turning over the reins to a debt settlement company.

If you intend to pursue debt settlement, understand that a creditor will often not even consider it until it is clear that you cannot pay off your balance(s). This means waiting three to six months all the while dodging collection calls and saving money for a settlement. If you do manage to negotiate a settlement, your credit report will reflect a zero balance (as if you paid it off), however, any previous delinquent payments or charge offs will still show up on your reports. Therefore, after the debt is paid off, you will have to begin the process of re-establishing and repairing your credit rating.

4. Debt Management

A debt management plan (DMP) allows you to get rid of your excess accumulated debt by paying them off through an affordable plan. It is designed to help those who have indebted themselves beyond their means, by lowering rates so they can pay their bills on time. A DMP is typically offered through a credit counseling agency or debt relief company.

Most debts like medical bills, credit card balances, student and payday loans, etc. are covered under a DMP, however, sometimes payday and student loans, depending on the plan, are excluded. A DMP will appeal to those who find themselves weighed down by numerous debt sources, have attempted unsuccessfully to manage their own debts, have fallen woefully behind and are now getting collection calls.

The goal of a DMP is to work out an agreement with your debt management company wherein your interest rate and principle payment is lowered into one convenient and affordable monthly payment. Once this is established, the collection calls stop and late over-limit fees are waived.

So what happens if you decide to pursue a DMP? Typically your debt management company will evaluate your current financial situation taking into account interest rates, total debt-load, and the minimum payment needed. The company then works on your behalf to lower interest rates and monthly payments so that you can affordably pay back your outstanding balances. The debtor then makes a single lump payment to the company who then disburses it to the appropriate billing agency. After 3-4 years the sum is then paid off.

There are several things to know when pursuing DMPs:

  1. If a company presents you with a plan and it is beyond your means, i.e. you cannot afford the monthly payment, do not accept it.

  2. Make sure you get everything in writing. Obtain, read, and understand all terms and conditions; verify the monthly fees and program's duration and make sure that if you have any questions or concerns, you address them before signing any agreement.

  3. In order for you DMP to work, it must be first approved by your creditors. Again, make sure you verify you have their full agreement before you agree to a DMP.

  4. Verify the DMP company's fees aren't too high. Many companies will charge a fee for each service they provide (application fee, enrollment fee, consultation fee, etc.). Find out what fees are charged and how much they are. Do your homework and check to see what, and how much, other companies charge for their services.

  5. Once enrolled in a DMP, make sure you do not skip or miss any payments.

  6. Keep track of your payments and how they are disbursed. It is important to ensure your creditors are being paid and paid on time and that the company isn't paying them late fees.

  7. Protect your privacy. Obtain a copy of a company's privacy policy. While applying for a DMP, you will be required to reveal personal information. Make sure the company isn't going to reveal or sell your information to other companies.



Your credit report will reflect the fact that you're making payments through a debt management company or credit counseling agency. Bear in mind that some agencies like FICO and Fair Isaac Corporations will not take this into account when calculating your credit score. Regardless, by making regular monthly payments and strictly adhering to a budget, debt management is an excellent way to go if you want to recover from your debt problems and get on with your life.

5. Bankruptcy

The final solution is bankruptcy or insolvency. Bankruptcy is ideal for those who simply find themselves in a situation where any or all the above-mentioned solutions can't or won't work. Bankruptcy works, but it does have serious long-term consequences. Any person considering bankruptcy should not take it lightly.

The first thing bankruptcy does free you from your creditors and collection agencies. That means they can no longer contact you to try to recover their monies. While this may sound attractive, it is important to note that bankruptcy carries with it serious implications.

First, all your assets will be seized and sold to help cover your debts. Any remaining, uncovered debts will have to be paid over time, usually by garnishing your wages. Also, bankruptcy will sometimes prevent you from pursuing some public offices or running a business. Your bankruptcy will be announced in public documents which anyone can peruse and your employer (present or future) will be made aware of it.

Also, borrowing money will be extremely difficult while in bankruptcy. You will most likely not be able to purchase property or get loans for things such as cars. Bankruptcy is a serious matter which sticks with an individual for a long time so do your homework and know the pros and cons before proceeding.

Finally, bankruptcy is not a process you should try to attempt yourself. Any person seriously considering bankruptcy should seek out legal counsel. Because bankruptcy is such a complicated and time-consuming process, it is best to leave it in the hands of a professional trained to deal with such matters. Any misstep on the part of the individual could have dire consequences later on. Nevertheless, it is best to only consider bankruptcy when all other options have been explored and exhausted.


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