Debt relief programs such as credit counseling, debt settlement or debt consolidation may bring some welcome relief and strategic planning to your personal financial situation, but the biggest mistake one can make is to jump into a debt relief program without thinking it through. There are many different types of programs and providers, and while many give good advice, a good plan for one person may become a disaster for another. You can avoid falling into common debt solution traps by understanding these five common debt relief mistakes.
Debt Relief Mistake #1: Not Knowing the Difference Between Debt Relief Programs
A debt relief mistake that’s more common than you’d think is confusing the different types of programs. Credit counseling, usually promoted by credit card companies, will not always address debts such as medical bills or personal loans. The focus of good credit counseling companies is strategic, with an eye towards helping you get back on track.
Debt settlement, on the other hand, has a different strategy in that it attempts to create a program for setting aside funds to negotiate settlements on all bills. Lastly, debt consolidation is a strategy of taking out one large loan to pay off multiple smaller ones.
It’s extremely important that you understand the differences between these debt relief programs in order to choose the solution that will fully address your needs.
Debt Relief Mistake #2: Automatic Payments
It is almost never a good idea to let someone you owe money to have access to your bank account. Bill collectors will pressure you to sign up for an automatic payment, whereby they deduct an agreed to amount from your account every month. The problem with that strategy is that unless you have a large account, you risk becoming overdrawn when that automatic withdrawal hits, thereby causing bank fees and potential problems with other creditors.
Credit counselors and other debt relief companies will probably advise you against this, but at the same time may encourage you to allow them to do the same thing. It is best to stay in control of your own account without outside assistance if you’re able to stay on top of paying your bills and remember to pay them on time each month
Debt Relief Mistake #3: Cutting Up All of Your Credit Cards
One of the biggest debt relief mistakes is unfortunately promoted by many so-called financial gurus, and that is to cut up every single one of your credit cards. Doing so leaves you with no available credit, and it gives you fewer options when negotiating payments. Another downside, if you are trying to improve your credit score, is that canceling all of your cards—even if you continue making payments on the balance on a timely basis—will seriously hurt your credit score.
Instead of canceling all of them, go about it strategically. Cancel the highest-interest cards, but retain one or two cards that you continue to pay on a timely basis. Preferably, these will be cards that you have held for the longest period of time. Having open lines of credit that you have had for several years will continue to improve your score month after month.
Debt Relief Mistake #4: Falling for the “Non-Profit” Claim of Some Debt Relief Companies
Some debt relief agencies have non-profit status, which in reality is little more than an advertising ploy in some cases. Consumers are more likely to see that non-profit status, and believe, incorrectly, that the agency will charge lower fees. In fact, the non-profit status is meaningless. Choose your debt relief agency by other factors, including their track record, fee structure and success rate, as well as their willingness to work with you and present you with a variety of options.
Debt Relief Mistake #5: Letting Bill Collectors Change Your Plan
Once you have made a plan, chances are a bill collector will try to talk you out of it. Every bill collector wants to have your highest priority. They want to be paid first, and will try their hardest to convince you to deviate from your plan. They may threaten you and try to bully and harass you. Stand firm and do not be swayed, and then continue to act according to your original plan.
It is easy to fall into these debt relief mistakes in the confusing world of debt management. With the help of the right debt relief program, a good strategy, and the willingness to stick to a plan once you have made it, you can achieve the debt relief you are looking for.
Today, there are a number of debt relief solutions that help consumers in every type of financial situation. Find out which debt relief solution will work best for you.