Debt Reduction and Debt Elimination Ads: The Real Scoop

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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