There are as many approaches to debt elimination as there are debt elimination programs. Ways to eliminate debt may range from customized budget plans, consolidation loans, and debt settlement to less legitimate offerings and advance fee scams. Do not throw out all of your options just because of a few bad apples. There are plenty of legitimate and successful debt elimination programs; it’s just a matter of knowing how to find the right one with the best terms.
Debt Elimination Programs to Avoid
According to the Federal Reserve System, Division of Banking Supervision and Regulation, some debt elimination schemes focus on creating specious, legalistic documents with questionable claims. These plans, instead of offering a reasoned plan for paying off or negotiating debt, attempt to convince the debtor that they can make bills magically disappear through some secret maneuvers and hidden loopholes. Many such schemes ask for a large advance payment, and access to your bank account—which is never a good idea. Some such programs claim to be “Federal Reserve approved,” even though the Fed does not approve debt elimination programs.
Companies that claim the ability to make your debt “disappear” are usually only attempting to take your money. Examine the terms and claims carefully before proceeding, and never sign up with a company that demands access to your bank account, or requires a large up-front fee before any results have been delivered.
If you encounter a debt elimination program that makes such a claim, it is too good to be true. Outside of bankruptcy, it is virtually impossible to make a debt “disappear” through any means. Instead of being taken in by outrageous claims, look for a debt elimination program that helps you manage your debts better, create a solid plan and stick to it, and reduce monthly payments through legitimate means such as debt consolidation, negotiation or settlement.
The FTC notes several legitimate options that can serve as viable alternatives to costly advance-fee debt elimination programs, including realistic budgeting, credit counseling, debt consolidation, or bankruptcy.
Debt Elimination or Debt Management?
Debt elimination is a deceiving term. The only way to eliminate a debt outside of bankruptcy is to either pay it off or negotiate a settlement with the lender. There may be a few isolated cases, if the lender violated a law or purposely deceived you in some way, in which a judge would eliminate a debt, but such cases are rare and usually require an attorney. In that respect, the proper approach is one of debt management, not attempted elimination without some sort of due process.
Eliminating credit card debt starts with learning proper use of available credit and paying bills on time. However, these methods are self-evident, and once you are already in debt, you may need more immediate help than credit counseling and classes can offer. If paying those bills represents an unbearable monthly debt, you do need to be able to find a way to reduce those debts. This is where consolidation or negotiation comes in.
The Right Way to Eliminate Debt
Pseudo-legalistic claims that border on fraud and companies requiring advance fees must be avoided. Instead, look for companies that can help to manage your debt through processes such as:
- Debt consolidation. Legitimate lenders can help you better manage your debt by lowering monthly payments, using tools such as secured home loans and other types of consolidation loans.
- Debt settlement. Lenders are more willing in today’s economy to settle a debt for less than the amount due. Before making a settlement payment, make sure you get the terms in writing. Also note that recent FTC rulings prohibit debt settlement companies from collecting fees before delivering results.
- Credit counseling. More of an indirect solution, counseling will help you by providing sound advice on credit management and budgeting, as well as guidance in procuring the other two types of services mentioned above.
As with any type of service, if it sounds too good to be true, it most likely is. Beware of outrageous claims being made by debt elimination firms, and realize that in almost every case, a solution will require at least a partial payment of the debt.