Personal debt relief can come through a variety of means, like budgeting, counseling, a debt management plan or a debt settlement program, but there are some of these debt relief opportunities that will obviously benefit consumers more than others and, in some cases, certain debt relief strategies should be avoided unless absolutely necessary. No matter the reason for seeking out debt relief options, consumers must look at not only how a debt relief plan works but how it will affect their credit as well. Some individuals have been taken advantage of by fraudulent organizations claiming to offer one service but actually implementing another, so understanding the differences in these programs can go a long way in helping consumers avoid more financial stress.
Yet, individuals who find themselves in a difficult financial position where credit counseling has not been helpful and personal budgeting practices are simply beyond the means to provide debt relief as well, often turn to either a debt management or debt settlement program. However, many advisers make it a point to stress the differences in these plans as, again, debt management and debt settlement can be helpful in some cases, but there are drawbacks to these programs which consumers must consider before entering into any type of agreement.
Also, consumers who are initially beginning their search for debt relief assistance must look at reputable organizations and find an accredited company that will work with them on a one-on-one basis to find solutions so that simple repayment strategies may be implemented and alternative debt relief programs can be avoided.
However, consumers return to a credit counseling agency as a way to gain some control over various debts may find that they simply do not have the income to meet the required expenses that are related to debt obligations that are outstanding in their life. In some cases, counselors may suggest that a consumer look into a debt management plan which will usually involve a counseling agency talking with creditors to formulate a more affordable monthly payment schedule and a consumer will then pay money to the counseling service who will, in turn, pay various creditors under this new repayment program.
While there are some advisers who feel these plans are dangerous and can be unhelpful, one of the main drawbacks to a debt management plan is simply fraudulent organizations who may be posing as a debt management company or who mismanage consumer funds. A debt management plan can appear on a consumer’s credit history but there are arguments that many financial institutions will not consider this to be a negative mark against the consumer’s credit score as they are paying the amount originally owed to various creditors but are doing so at a more affordable rate and, obviously, are not defaulting on these debts.
Problems, however, arise when a fraudulent organization or a debt management company either makes payments late or may charge excessive fees to a consumer which will obviously create financial stress and could result in a lower score if missed payments are involved. Yet, a debt settlement program is usually the last resort that a consumer will want to take in order to find debt relief.
Debt settlement can cause a drop in a consumer’s credit score because essentially they will be paying less money than they had originally owed to a creditor. These programs are simply an agreement between a creditor and consumer, with the help of a debt settlement program, to pay a lower price on debt and be free and clear of these obligations. Usually, debt settlement may require certain lines of credit be closed if, for example, a consumer reaches a debt settlement agreement with a particular credit card lender, so this again could be detrimental to one’s credit score. While debt settlement is one way to find debt relief, it is not the most optimal plan and consumers who are facing financial troubles should first either talk directly with their creditors or a reputable credit counseling agency to find alternatives that will help them either better manage their debt obligations or simply find more affordability in their monthly payment requirements so that they can erase their debt in full without turning to a settlement agreement.