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Debt Relief: Myth & Reality

Debt relief comes in many forms — credit counseling, debt consolidation loans, settlement and even bankruptcy. Each solution will help you get out of debt, but the long term impacts and fees can vary greatly. Understand the myth and reality behind your debt relief options.

Credit Counseling

Myth: All credit counseling programs are the same.

Reality: Unfortunately, there are people and companies out there that make a living taking advantage of people in financial trouble. Please be careful. Please do your homework — check around; ask questions. Beware of hidden fees. If a company requires you to make a payment to them (a payment that they'll keep) before they will make payment to your creditors — find another company. For more information, read the U.S. Federal Trade Commission article Fiscal Fitness: Choosing a Credit Counselor.

Myth: If I check with multiple Credit Counseling Agencies (CCAs), I may find one with a lower creditor payment than another.

Reality: The creditor benefits you will receive on a debt management program are standardized within the industry. Agencies providing the CareOne service, as industry leaders, work with thousands of creditors on your behalf, allowing efficient and accurate processing of your payments and benefits.

Myth: If a CCA is non-profit it must be reputable.

Reality: There are more than a thousand credit counseling agencies in the United States, having very different service levels, fee structures, and reputations. Find out if the service has member access by phone and online, electronic debt repayment processing, and 24/7 customer service. Also, check out your local Better Business Bureau (www.bbb.org) for complaints.

Debt Consolidation Loan

Myth: A debt consolidation loan is the best way for a homeowner to get out of debt.

Reality: For some homeowners the answer can be yes. But it will depend on several factors, such as the amount of equity in your home, the current interest rate on the mortgage, and the value of your property. However, if you are having trouble paying your credit card debt as it is, rolling it all together in with the security of your home could be a risk not worth taking.

Debt Settlement

Myth: Debt settlement is a good, new alternative to get out of debt.

Reality: If you still can't afford your reduced monthly payment with credit counseling then debt settlement may be an option. Like bankruptcy, debt settlement may have a lasting impact on your credit report which will affect your ability to get credit at favorable interest rates. Fees for this service vary significantly from company to company, so do your homework. For the differences between debt consolidation and debt settlement, see the Wikipedia entry about debt settlement and the article Debt Consolidation Company vs. Debt Settlement Company.


Myth: Bankruptcy isn't such a bad alternative.

Reality: If you still can't afford your reduced monthly payment with credit counseling then bankruptcy may be an option. Bankruptcy will have a lasting impact on your credit report (10 years). Filing bankruptcy may also be the most expensive alternative — if you decide to buy a car or a house your interest rates could dramatically increase (more than double). Also, the 2005 bankruptcy reform law has made it more difficult to file for bankruptcy and there are stricter rules in the bankruptcy process. For more information about bankruptcy, see the U.S. Courts Bankruptcy Basics webpage and the American Bankruptcy Institute Overview of Bankruptcy.

For more information on debt relief, read the related articles in our Knowledge Center Library.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.


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