Man in suit being chased by a wrecking ball labeled DEBT.

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If you're buried under a mountain of bills or worry that you might not be able to make your credit card payments, debt relief can help. The trick is to find legitimate debt relief, the kind that helps you meet your financial goals without making the situation worse. 

What is debt relief? 

When a borrower has trouble meeting their financial obligations, lenders may offer relief in the form of "breaks." Those breaks can lead to lowering or eliminating the interest rate, forgiving penalties, or slashing the principal due on a loan. Not every lender is willing or able to offer relief, but for those that are, it is often because they would rather collect some of the debt than lose it to a bankruptcy court. 

Where to find legitimate debt relief

All debt relief companies are not created equal. Some operate purely for profit, while others are nonprofit organizations. Some offer educational services to help you become a smarter consumer, while others simply collect your check each month. The best debt relief organizations provide a combination of financial education and, when necessary, debt management. 

If your debt is out of control or you don't know where to begin, a nonprofit credit counseling service can help. The most credible credit counseling services can be found through organizations like the National Foundation for Credit Counseling (NFCC). NFCC has been around for nearly 70 years and acts as a clearinghouse for nonprofit financial counseling organizations. 

A legit credit counseling service will help you develop a workable budget and provide you with certified counselors who will discuss your financial situation and help you come up with a plan to deal with money issues. Before you make an appointment with a credit counseling service, the Federal Trade Commission recommends asking the service these questions:

  • What services am I eligible for? 
  • What are your fees and what happens if I can't afford to pay them? 
  • Do you charge for informational materials?
  • Will you help me come up with a plan for avoiding new debt problems?
  • How can I be certain private information about me will be kept confidential?
  • Will we have a written agreement? 

One advantage of working with a credit counseling service is that they are far enough removed from your situation to see it clearly. If they believe that adhering to a budget and making other changes will turn your finances around, that's what they will recommend. However, if your debt load is too deep for you to overcome on your own, they may recommend a debt management plan (DMP). 

How a DMP works

With a DMP, you make a predetermined deposit each month with the credit counseling service. The service then uses the money to pay your unsecured debt, like credit cards and medical bills. The counseling service negotiates with your lenders, seeking a lower interest rate or asking them to waive fees. A DMP only works if you make on-time payments every month for the agreed-upon term. 

The downside of a DMP

Entering into a DMP does not remove any negative remarks from your credit report. If an organization tells you they have a "trick" for removing negative remarks, they are lying. Legally, it is impossible. And, once you enter into a DMP agreement, your credit report may be flagged with a note indicating that payments are being made through a DMP. 

In the short term, entering into a DMP will typically lower your credit score. The goal of entering into such a program is getting the debt paid off as quickly as possible. Once you've paid it off, you're in a better position to rebuild your score. A credible service will be able to walk you through how long the program will take, how to handle your budget while enrolled in a DMP, and how to build your credit once you've met the obligation. 

Be wary of debt settlement programs

A debt management plan through a reputable debt relief program is not to be confused with a debt settlement program, even though the names are similar. Most debt settlement programs are for-profit. The way they usually work is by negotiating with your creditors to allow you to pay less than the full amount owed. They often encourage clients to stop making monthly payments (which is terrible for your credit score) and instruct you to transfer money each month into an escrow account. Once you've accumulated enough money in the account to cover the amount they settled for, the program pays your debt. 

Although being in debt can make you feel desperate, there are several reasons to think twice before getting involved with a debt settlement program. 

  • It may take years to put enough money into the escrow-like account to pay off the settled debt. It is common for debtors to drop out of the program before their debts are settled. 
  • Even if you faithfully make monthly payments, your creditors have no legal obligation to agree to a lower settled amount. 
  • Debt settlement companies are in the habit of negotiating small debts first, leaving large debts to rack up interest and fees. 
  • Working with a debt settlement company does not prevent bill collectors from calling, and they are sure to contact you if you stop making payments. 

Getting out from under a mountain of debt may feel overwhelming, but it is doable. Plus, if you work with the right debt relief company, you'll have the added bonus of learning more about finances along the way.