The Real Scoop On Debt Elimination Programs

I get a lot of email from readers (and from spammers) about so-called debt elimination programs – organizations that promise to “eliminate” large portions of your debt and leave you debt free in a certain number of years. Do they really work, or is it a scam?

I looked into several of these via “free trials” and almost every one of them was essentially the same – a compilation of decent personal finance advice crammed together in the framework of a plan. Most of them included a computer program to create a simple monthly budget for you and also tell you which debt to pay off first and how much to pay on that debt – essentially a computerized version of Dave Ramsey’s “debt snowball.”

Do these programs “eliminate debt”? They sure do, but probably not in the immediate “debt free” sense that you’re thinking. Instead, they put you on a very hard debt repayment course that’s designed to have successes along the way so you can feel like you’re making real progress, plus they usually tell you to call creditors and negotiate with them, offering some basic techniques for doing so, or encourage you to visit a credit counseling service.

These programs also claim to raise my net worth? Whenever you start paying off debt, your net worth will begin to go up over time – or at least the downward slide will begin to slow. Let’s say you have $20,000 in assets, make only $150 a month, and you have $10,000 in debt at 18% interest. Your net worth is $10,000, but you have to make payments of $150 every month just to stay in place – and this situation will continue forever. If you instead make payments of $300 a month, the first month will see no difference in your net worth – your assets will total $19,850 and your debt will total $9,850, giving you a net worth of $10,000 again. But the following month, that $300 will pay more principal and less interest than before – your debt is smaller and thus doesn’t earn as much interest – and so after the second month, your assets would be $19,700 and your debt would be $9,697.75. Your net worth is thus $10,002.25 – it’s gone up just because you’re taking care of your debt. The increases in net worth occur because of the decreases in debt.

This sounds harder than the ad makes it sound. It is – there is no legal method of getting completely free of your debts. These plans are just like any such “life transformation” plan – they work spectacularly well if you’re truly committed to the change, but they aren’t worth the paper they’re printed on if you’re not. Even more importantly, such programs are usually made up of information that’s available for free – or close to it – elsewhere.

Here’s the scoop: if a program like this is appealing to you, instead just go to the library and check out Dave Ramsey’s book The Total Money Makeover. The meat of these debt elimination programs can be found in that book – and the book can be checked out for free at your library instead of paying the exorbitant cost of the debt elimination program.

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  1. FIRE Finance says:

    Excellent post. Thanks for writing in details. We had no clue about this Debt Elimination Programs. Ramsey’s The Total Money Makeover is a great book.
    Cheers,
    FIRE Finance

  2. FIRE Finance says:

    Excellent post. Thanks for writing in details. We had no clue about these Debt Elimination Programs. Ramsey’s The Total Money Makeover is a great book.
    Cheers,
    FIRE Finance

  3. Engineer says:

    “there is no legal method of getting completely free of your debts. ”

    Actually there is a legal and 100% guaranteed method of becoming completely free of your debts. The secret method is — drum roll please — you pay them off.

    OK OK. That wasn’t what you meant.

    Just curious, what do these Debt Elimination Programs cost? How do they compare to what Dave Ramsey charges?

    Somehow I don’t see the logic in paying for this type of material when you’re heavily in debt. Whether to a “debt elimination” program or even to Dave Ramsey. But the concept of spending less than you earn is foreign to too many people.

  4. doug m says:

    i’ve heard of these programs actually costing money to enroll in and you end up paying way more than you owed in the first place. correct me if i’m wrong on that, but i for one am trying to rid myself of debt the old fashioned way by paying larger than minimum payments on my larger debts and making small changes to my monthly budget so that i do not hurt myself financially.

  5. Ellen says:

    I agree with all that you said, however there are times when good consumer conuseling is needed. In our case my husband lost his job after 911 and was out of work for one and a half years. We built up quite a bit of debt during that time thinking once he was back to work we’d be able to handle it. Well, best laid plans…….

    With the help of CCCS, http://www.nfcc.org/ we are on our way to being debt free. This is a non-profit organization and they were abe to negotiate with our creditors for reduced or elimination of interest and to agree to lower payments in some cases. We tried to do this ourselves with little success. We are on our fourth year of a five year program. With their help we didn’t go bankrupt and our credit score actually improved.

    You have to do your homework, there are many “scams” out there, but those listed with the National Foundation of Consumer Counseling can be very helpful.

  6. B. Gonzalez says:

    I think some of these people may be confused about what you are talking about. There are so-called “debt relief” agencies that offer to reduce your interest rates and offer settlements to creditors – as long as you pay them an upfront fee that is usually in the hundreds of dollars.

    I think what you have described is what you would find in the self-help section of the library.

    Self-help is a good thing but these daytime commercials from these companies that call themselves “debt relief” agencies and “settlement” agencies are a huge scam. They basically tell people have a way to stop these evil corporations from getting back the money that was loaned to them- not like credit card companies don’t do everything shy of begging for fraudulent charges or high defaults.

  7. Mouseclone says:

    I thought for a long time about this stuff. I never understood either why I would pay someone else to pay off my debt. I just called people up and told them what was going on. Some people would help out others wouldn’t.

    I was also in debt for well over $15k at one time. 7 years of living on cash is a good thing. Problem now is that I have credit again and I am going though some of the same things. I did catch myself though so we, me and my wife, are making cut backs and paying higher payments. We are hoping to get rid of some of the debt this year, and by the end of next year have it all paid off but the car. This will put us in a better position to buy a home we really want.

  8. Tony says:

    Dave Ramsey doesn’t charge you to be on his plan. On his website you can actually find his debt elimination plan for FREE. He does have a section of his website that you must pay to be a part of but by no means are you required to do so it follow his plan. You can even listen to his daily show for free online.

  9. Trent Trent says:

    That’s what I meant, Tony. Dave’s content is very similar to these programs and you can get all the info for free.

  10. Fee says:

    Hello,
    I’ve searched Dave Ramey’s site and simply can’t find any part of it that is free, such as what some of you are talking about. Can you tell me what links to look for? His site has quite a few things on it to look at, and all of them seem to end up with the “sign up” (for either the free trial fee or the other two fees). Thank you.

  11. Michael Riley says:

    Hello,
    Since 1991 I have been helping people get themselves out of debt. I created an easy to use computer program that actually creates a debt repayment plan that uses the payment snowball method.

    In 1994, I came out with a program called “Credit Card Math”, which is a free financial tool that explains the truth about why credit cards take so long to pay off. When I wrote this, I was only thinking about the consumer.

    What I didn’t relize was this… “Credit Card Math” was also a “Ready Made Business Plan” for my competitors.

    Anyway, Credit Card Math is free, my other software costs $40. For more information visit http://www/zilchworks.com

  12. I’m never convinced by programs which claim to eliminate debt, and agree wit your comments trent on this matter. I think that the best and most tried and tested way to reduce debt and eventually eliminate it is by disciplined spending and saving.

  13. Mark Donnay says:

    No matter who you get debt elimination advice from, there is one thing every successful debt elimination program has and that is discipline. The concept of elimination debt is actually much more complex than just “paying off all your debt”. You can do it the right way and save a large amount of money, or you can do it without much thought and save alot less money. For $69.97 Modern Debt Solutions provides a management portal where you can keep the process organized, develop a quality plan, have access to experts, and access to high quality multimedia tutorials on all subjects realted including repairing your credit, managing and eliminating debt, advanced budgeting techniques and advanced money leveraging techniques. If you are serious about eliminating your debt, this would be an extremely useful tool to have. For more information visit: http://www.moderndebtsolutions.com

  14. Beverly Meyer says:

    I have a question. I am interested in Jordan McKenna for debt negotiations. His company uses lawyers. Have you heard if he is legitimate or a rip off? I have not been able to find a review of his service online yet.
    Thank-you, Bev

  15. Meg Power says:

    In answer to the question about cost of some of these programs:

    I flunked out of Dave Ramsey’s The Total Money Makeover, and in desperation signed up for Money Mastery, which was over $7,000. The key to knowing they’re going to rip you off is the fact that they want to know if you have at least $5K available on one credit card. I dis-enrolled the next day (of course, it was a one-time offer, had to take advantage of it the day I originally spoke with them) and it took more than 2 months to get a full refund.

    Since I was still desperate, I paid $39 for John Cummuta’s plan, and it read almost word for word as The Total Money Makeover. Then one of his henchmen called and asked if he could give me the “advanced lessons”. After 30 minutes of in-depth asking about my situation, he offered a “for approved clients only” plan for $6,000. Barf.

    So now, I’m back to the envelope system and the debt snowball. The only part of Total Money Makeover I’m not following is working 2 jobs, because I need to be available to friends and family who have health concerns.

    Good luck to everyone who is working towards freedom from debt, and on to financial freedom.

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