Debt Elimination Programs
Possible Scams Considered as Options to Consolidate Debt
For individuals looking for ways to pay off debt, a debt elimination plan would be very appealing because it would allow them to eliminate their debt without filing for bankruptcy or going into foreclosure. But consumers need to be wary of the multitude of scams out there being offered as debt elimination services. Too often the means employed to help individuals in uncomfortable debt related situations are unethical at best, illegal at worst and can often get the consumer into trouble.
How do Debt Elimination Programs Work?
Credit card and other debt elimination programs work in various ways. One of the most common options often employed involves the company telling the consumer to stop making all of their payments. In the meantime, this company will contact the creditors to work on negotiating the debt down, possibly threatening them with legal action (usually though, there are no grounds for these threats as the creditors have nothing illegal). Because the consumer is no longer making payments on their debts, this begins to affect their credit score. There is also no guarantee that the creditors will negotiate, keeping the debt as it was before.
In addition to the negative credit score and bad relations the consumer has now developed with their creditors, there is also usually a large fee charged by debt elimination companies. There are some programs that are nonprofit, but most do not involve decreasing debt but managing it instead and the vast majority of organizations out there do charge a substantial fee whether or not the debt is reduced at all.
Costs of Debt Reduction Plans
There are also hidden costs regarding these programs that often aren't considered by consumers looking for a way out. The higher interest rates being paid on future credit caused by the poor credit score is another factor that should be considered when deciding to use a debt reduction service. It can be difficult and time consuming to repair bad credit. In the meantime the consumer will have to settle for poor interest rates and have a much harder time obtaining credit (such as car loans or mortgages).
On top of all the costs associated with these programs, there is also the fact that everything they're hired to do is something any consumer is able to do on their own. Contacting creditors with a phone call or writing a letter to them to see if APRs could be lowered or a possible payment plan set up is a very simple task. Most banks also offer debt consolidation options. Many financial advisers will recommend a consumer attempt these things on their before resorting to debt elimination programs.
Debt Elimination Scams
There are some dangerous debt elimination scams that even the federal government has gotten involved in because of their prevalence and theft. One such scam involves consumers paying a high fee (usually a couple thousand dollars) for a "certificate" that they can then take to their banks claiming they no longer owe the debt in question. In truth, programs like that are nothing but highly illegal scams.
More and more people are turning to debt elimination as a way to escape their current financial crises. Instead, they should be focusing on making their debt and monthly payments manageable and avoid getting further into debt.
Sources and Further Reading:
Options for Consolidating Personal Debt: Credit Cards, Consolidation Loans, and Home Equity Lines of Credit by Tiffany Krey at Suite101
Debt Reduction and Debt Elimination Programs: What's the Catch? by Trent Hamm at The Simple Dollar
Watch out for debt-elimination scams by Liz Pulliam-Weston at MSN Money
Beware of Hidden Costs with Debt Elimination Plans
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