Updated on 09.16.14

Debt Reduction and Debt Elimination Ads: The Real Scoop

Trent Hamm

Iris writes in:

I was wondering if you could comment on the debt reduction and debt elimination ads I keep seeing on tv. Are these companies reputable? Are they doing anything that I can’t do myself? I would hate to pay a huge fee for something I could do myself. I would really like to reduce our debt load so I can free up more funds in our budget every month for, say, groceries. Advice?

The first and most important thing to note is that not all debt reduction and debt elimination programs are the same. Although they’re often collected under the same grouping, these programs tend to provide an array of services.

Unfortunately, all of the services provided are either dangerous or easily replaced by free materials.

One common service provided is education in how to pay off debt. They explain, in great detail, how to create your own debt repayment plan and stick to it. They provide workbooks and other information to make the process as painless as possible.

The catch here is that you’re paying a lot for materials that can be found at the library or online for free or even at your local bookstore for a much lower price. If this is what you need, start off by checking The Total Money Makeover out of the library.

Another common service provided is direct management of your debts. Instead of teaching you how to make a debt repayment plan, they essentially take charge of all of your debts, do it for you, and provide you with a single monthly bill.

The catch here is that the fee for their service is often very high, usually running into the thousands of dollars. Considering that a person can make up such a debt repayment plan themselves for free, this is a pricey service. There can be some merit here, though, if a person simply wants an “enforcer” or a “coach” to help them do it.

A third common practice is renegotiation of debts. This is often the tactic used by programs that promise very rapid elimination of your debt. They’ll negotiate your debt for you, often functioning as a debt collection agency themselves, then you pay them a lower, negotiated amount.

The catch here is that this functions as a nuclear bomb on your credit report. Your credit score will be in the trash for years if you take this approach. The actual amount you have to pay for this debt is less, but any debts you take out in the next seven years – or any insurance you take out – will cost you more, and any applications you make where your credit report is used as a factor will not reflect well on you.

In short, all of these plans do what they advertise, but they often cost far more than they’re worth.

The key thing to remember is this: no debt reduction or elimination plan is worth anything if it’s not paired with a sincere, long-term change in your own spending. If you’re merely using these services to give yourself some breathing room without changing your spending behaviors into a more frugal spend-less-than-you-earn attitude, it’s just a matter of time before you’re back in the same boat again – and often in worse shape if you’re back in this boat with poor credit.

On the other hand, if you first get your personal spending habits into shape and truly go forward with a “spend less than you earn” mindset, you can handle the debt repayment plan yourself. They’re easy to set up, won’t destroy your credit, and don’t cost an arm and a leg, either.

Good luck.

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  1. J says:

    “If it’s too good to be true, it probably is”

    We got TMM from the library when we started. You can also get the Ramsey podcast for free, too. There’s no real “secret” to debt reduction, it’s just common sense, determination and sacrifice.

    A similar blog entry could be entered for weight loss gimmicks. There’s no secret there, either — you eat more than you burn and you will gain weight. Control your eating and exercise and you will lose weight.

  2. zoranian says:

    As a non-profit credit counselor I have to say that our fees are normally much less than “thousands” and the negotiated lower interest rates can help some people save thousands (basically if you are paying more than 10% right now, a non-profit credit counselor is very likely to be able to negotiate reduced interest and be able to remove late fees and over limit fees). As a non-profit, however, we don’t normally advertise on TV.

    Anyone considering debt repayment and struggling to make minimum payments should seek the advice of a certified credit counselor from the NFCC (National Foundation for Credit Counselors). Go to http://www.nfcc.org. Of course, check out any business you are considering calling with the Better Business Bureau. A certified credit counselor may also be able to provide advice on budgeting, mortgage modifications, and even bankruptcy if there is no conceivable repayment plan available.

  3. Vicky says:

    “Control your eating and exercise and you will lose weight.”

    Eh, if it were only that easy. :p

  4. Mary W says:

    Even worse some of the debt negotiation programs will take your money each month and NOT immediately pay your bills. They wait until you are many months behind which puts them in a better position to negotiate a lower payoff. Of course in the meantime your credit is completely trashed.

  5. Julia says:

    You’ve missed an important category of debt reduction services — the nonprofits. I used a nonprofit debt consolidator in the mid-90’s, and their services were both cheap and invaluable. They renegotiated my rates & repayment terms – none of my creditors responded to my efforts – and my total costs were a few hundred bucks in service fees spread out over three years. That was FAR less than I would’ve paid in interest on my substantial debt. And my credit score was improved, not trashed, by the regular payments and eventual elimination of the debt. I understand that their are many unethical companies in this game now, but there are some good guys. And the services they provide are not actually available to individuals.

  6. jgonzales says:

    My family is with one of the first category of debt plans. Someone who helps and teaches us. We do pay her quite a bit of money for the service, but it was probably the best thing we ever did financially. She is someone local (gets clients by word of mouth only, no commercials!). While I know I could have used free material, free material wasn’t helping us because we felt so trapped. Going to her, having someone be accountable for where the money was really going was what finally helped us change. Our attitude toward money changed once we were set up with her, even though we had been desperate for change before that.

    I think of it this way: You can get your exercise from lots of free activities, yet many people pay for a gym membership because it helps motivate them, gives them more tools than they had readily available, and it gives them some accountability to show up. I get the same things with my financial counselor.

  7. J, great plan with the TMM (Total Money Makeover) book! That’s a great walk-through of a complete debt-free plan which is what it takes to really succeed!

    Debt consolidation companies don’t do anything that you can’t do yourself. The key is to get your hands on the proper information, some encouragement, and maybe someone to walk with you while you clean it up. It can be done and it will save you thousands!

  8. Russ says:

    You can also contact Consumer Credit Counseling Service. They are a non-profit agency that offers free services in all 50 states.


    Hope this helps!

  9. The 20K Mom says:

    I am sure that many people have been helped by professionals, but I think that most information on debt repayment ca be found for free on the internet or at the library. This site is great. So is Dave Ramsey.

  10. Brittany says:

    There are also some non-profits that do this work ethically for free or very low-cost (Skills for Living is a local one here), however they tend to be small, local, and not running flashy ad campaigns. You might have to meet income guidelines and do a bit of research to find one, but they do exist and can be a tremendous resource.

  11. Rob says:

    Credit Unions are a good place to check. Some of the large ones offer pretty close to all of the above for free.

  12. Henry says:

    Just declare bankruptcy. It’s much cheaper, painless and everyone is doing it. You’d be surprised at the credit offers you’ll be getting at the end of the rainbow. Not that you should take out new lines of credit after the bankruptcy, but the availability goes to show how much better bankruptcy is compared to struggling to consolidate and actually pay your debts, the late payments and struggling will all be documented compared to the clean slate that is available.

  13. Eric says:

    Dave Ramsey’s “Total Money Makeover” is awesome. My wife and I started out 2009 with $47,600 in credit card, back taxes to the IRS, and loans. We do not have a mortgage. By following the plan laid out in the book, we ended the year with $22,308 in debt. We eliminated just over $25,000 in a year. It has taken sacrifice, but we will be free in September 2010. Maybe August if all goes just right. We hit the IRS first, even though it was the lowest debt. I just wanted to have the peace of mind knowing that Uncle Sam was taken care of. Then we hit the debts as Dave describes in his book. No secret to it. Pay off debt and don’t take out any new debt. Just my input.

  14. C says:

    some cc companies see this as a good thing, signing up for a counseling program, but some think otherwise.

    my cc debt got out of control after college. i signed up for a consolidation program with a nonprofit organization that charges a low monthly fee ($8 bucks). sure, i get monthly newsletters on tips that i could have gotten off the internet. but they negotiated a very low finance charge – from 18% to 2%. i couldn’t have done this without help. the catch is that i may not use the credit cards while i was on the program. i completed the program and haven’t used the cards since. i’ve learned that i can live without them.

    too bad that sometimes finding the right organization to sign up with could be a hit or miss.

  15. anna says:

    I agree with Henry. I had a roommate whose parents had declared bankruptcy 3 years before (2004) and they had 2 brand new vehicles Financed, a HUGE mortgage on their house and were obviously struggling to make payments with debt up to their eyeballs. I know all of this because my roommate came to me on more than one occasion asking for financial assistance since her parents provided NO support for her while we were in college because “they couldn’t afford to help their only child” while she worked 2 jobs & went to school full time. At 21 I couldn’t understand how ANYONE could declare bankruptcy once and turn around 3 years later with a ton of debt again, I now realize that they had a serious financial management problem but also companies should know better than to loan money to these people. People declare bankruptcy because its easy and they don’t learn so they continue to get into debt again.

  16. I’d agree with the other commenters.

    First, its not hard–mostly common sense and determination.

    Second, what you do need you can find for free.

    And third, yes, I am repeating myself, NEVER pay a dime for any of this.

    The goal is to spend less money–not more

  17. deRuiter says:

    I’m with David #9!!!! Debt reduction should cost you NOTHING EXTRA! 1. STOP SPENDING! 2. Borrow Dave Ramsey’s book from the library, and begin his baby steps, I think he calls it. 3. Sell everything you own except for mattresses, linens, basic clothes, tools and kitchen implements, sell everything else and apply the money to your debts. It will amaze you how little money that “stuff” for which you paid so much, is really worth. 4. Get extra work to earn extra money. 5. Rent out space in your home, rent out your garage (it’s empty now that you’ve sold all your clutter.) 6. Plant a vegetable garden and eat out of it. 7. Pay off the littlest debts first. 8. Do not spend anything, eat less, cook at home, work more, mend your clothing, put your money on your debts. 6. Our Federal and State governments are refusing to do this, and our country is about to go bankrupt, China and the rest of the world are not financially able to buy all of America’s mushrooming debt, there is too much of it. The American economy is about to tank because of this and the coming high taxes on EVERYONE. Get out of debt now because things are going to get worse. As for personal bankruptcy, as a landlord, don’t even bother to apply for one of my places. Bankruptcy means that you’ve cheated people like me out of our hard earned money, and that I am forced to pay more for goods and services to make up for you not paying your debts. If you were willing to go bankrupt once, you won’t flinch at not paying me. The more you do them, the easier things get, whether saving and paying off debt, or stiffing those to whom you owe money. Frequently debt isn’t a lack of money, it’s poor money management skills, profligate spending, and refusal to get out and earn extra. We’re not discussing that your cousin went bankrupt because of cancer, that’s an act of God. It’s different than bad money managment. SPEND LESS THAN YOU TAKE IN.

  18. deRuiter says:

    Anything you see advertised on TV you should not buy, as you are paying for the ads by buying a good or service which is advertised. Get the Dave Ramsey book and do it yourself for free!

  19. Maureen says:

    I definitely recommend Dave Ramsey and his books. I find the podcast inspirational, for some reason, but I am more liberal and disagree pretty significantly with his politics. But if you can manage to ignore that aspect, it can be inspiring.

    We started our “debt snowball” as DR calls it and just this week paid off our last credit card bill. That’s a total of about $26k in 14 months. It’s crazy-fun to be paying cash for things that come up now – $690 for a new hot water heater? No problem. We have one more debt – a student loan – that is on track to be paid off in June. Then we’ll owe nothing but our house.

    Living on CASH is good. The main thing about DR’s program is that it makes you aware, and then you get kind of crazy about finishing the process.

  20. Kevin says:

    An interesting irony about bankruptcy is that after declaring bankruptcy, it’s actually very easy to obtain credit again. The reason is because creditors know you cannot legally declare bankruptcy again for another 7 years, so they have a very high probability of getting their money from you. You have no escape routes left, so they’re not worried about getting shortchanged.

  21. Diane says:

    Let’s face it. Most things we do in life you do not need to hire help. You can exercise without a personal trainer, you can clean your house without a housekeeper, you can change the oil in your car without hiring a mechanic. However, not everyone can do it with free information only.

    I truly believe that like #4jgonzales found out, you sometimes need someone to teach you the skills. Managing money is a skill. My business is very much like the person jgonzales describes. Sometimes someone might need the personal trainer before they can go on their own. And sometimes, you are better off paying for the personal trainer to keep you motivated.

    #7henry/#8anna and others make bankruptcy sound like a cake walk. Yes, you can get credit easily for the next 7 years as #12kevin points out. But you will be paying for it a very long time. How so? Any credit you do get, you will be paying top dollar to get it. Interest rates on any loan or credit card will be the highest available.

  22. Brittany says:

    I have a feeling the bankruptcy-cake-walk posts were tinged with a bit of scorn for how easy it is to slough off debt, not an intention to say: Hey! Bankruptcy is awesome! Go for it!

    If I remember correctly, Trent has a good article or two explore the pluses, minuses, ethics of deciding to file for bankruptcy.

  23. Henry says:

    I’ll tell you, I never got to file bankruptcy, but would’ve loved to. I found something a lot better. It’s worked over six times in the past year for me, family and friends. You have a credit card or other such debt. You’ve not paid it, it’s been through collections, sold a few times between various debt collectors. Finally, one of them sues you over it.
    File an answer in court to their complaint, deny everything, demand proof of the debts. I learned that from Kevin Trudeau’s Debt Cures They Don’t Want You To Know About. The debts have been passed around so much none of them has any of the original paperwork, especailly with signatures to bring to court to prove anything.
    One of the times they actually presented something with a ‘signature,’ but it was an obvious forgery because that person NEVER printed their name and address they always wrote it, so it was thrown out.
    You don’t have to pay, and they stop hounding you, AND they have to remove it from your credit report. It is beautiful.
    I know people that were being foreclosed upon, and fought the foreclosures because the companies lost the notes. They walked out of court owning their homes and walked away with tens of thousands, sometimes over a hundred thousand, absolutely free. So great. Who says you can’t get something for nothing?

  24. Brittany says:

    Okay, I rescind my last comment defending you, Henry. Can we get an Ethical Frugality post on that gross abuse of the system, Trent?

  25. Henry says:

    That’s their problem Brittany. They’re so money hungry they just expect you and everyone else to be stupid sheep. They think that when you get that registered letter or summons when they sue you that you’ll yell “Oh, lordy lordy, what will I do!” and then not even show up to court.
    Think about it. What if you loan someone money? What if you perform some sort of service for someone for promise of future payment and don’t get a contract or other record of the transaction? How strong do you think your case for collection would be against them?
    These credit card companies are faceless, unethical and supposedly professional. If they’re not professional enough to maintain records of outstanding claims, those userers deserve whatever they get.

  26. Henry says:

    And you think it is ethical for them to present a forged signature as evidence? Maybe he owed the debt, maybe he didn’t, but the debt collector still falsified documents and presented them to the court. That is blatantly unethical.

  27. asrai says:

    Henry that plan only works if you don’t owe the debt. If you do then own up and pay it off.

    It sucks that the US doesn’t have help for debt repayment. In Canada there is a non-profit called Credit Counselling Canada. They BBB accredited and operate in every province.

  28. Wow, Henry, you’ve got issues.

    The point isn’t whether or not the credit card companies are ethical but that YOU are ethical. You know what you’re doing is wrong and because they’re doing something wrong doesn’t make that right.

    You need to get some serious standards.

  29. Dizz says:

    Bankrupcy is for a clean start. Not to abuse the system.

    Tip: If you miss a few payments, your credit card companies will ask you to join an interest free or low interest hardship program to pay off your debt. If you call them before you miss a few payments, they will not want to work with you at all. My interest rates were 10-20% but now I’m on a 0% program until my balance is paid in full.

  30. Henry says:

    My standards are as serious as this economy and my current financial situation. Thank you Diana.

  31. Brittany says:

    Serious doesn’t equal right.

    And I really would like to see an Ethical Frugality debate on this. It’s an interesting issue.

  32. Okay, I really have no time about ads and the real scoop. Think about it. What if you perform some sort of service for someone for promise of future payment and don’t get a contract or other record of the transaction? How strong do you think your case for collection would be against them?

  33. Noel says:

    We used the consumer credit counseling services in our area. It costs $2.00 per month. They negotiated lower interest rates for us, but not lower payments or balances, so it did not hurt our credit. We paid them once a month and they made the payments for us. They helped us create a budget and stick to it. We had a personal counselor that met with us as needed. This was through our county and it really helped. I would recommend it to anyone in a bad situation.

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