When you are struggling with reducing credit card debt you have numerous options to turn to. Terms such as credit counseling, debt management plans, debt reduction services are often used hand in hand. However, is it all the same?
Why use Debt Reduction Services? The Plus Side!
Many people believe that a debt reduction service and a credit counseling agency are the same. In reality, these two types of organizations are different. A debt reduction service is oriented toward negotiating a lump-sum settlement with a consumer’s creditors. In contrast, a credit counseling agency’s mission is to provide debt management advice and effective programs geared toward enabling consumers to responsibly pay off their existing debt and get their finances in order.
The biggest benefit of a debt reduction service is that you can pay off your debt quickly if you have enough money on hand to cover the negotiated settlement. Otherwise, the disadvantages outweigh the advantages.
What are the Disadvantages of Debt Reduction Services?
Using a debt reduction service is full of perils. This is mainly because the industry is mostly unregulated. There are several dangers of settling debts through a debt reduction service:
- Fraud is common because some debt-settlement companies are scams. Some lack the experience required to negotiate effective deals.
- Failing to pay your bills on time destroys your credit scores. Also settling a debt for less than your balance causes further damage.
- The Internal Revenue Service taxes you on the difference between what you owe and the amount you pay in a settlement. That causes additional financial problems for most debtors.
- The fees for debt settlement are high, often ranging from 14% to 18% of the total debt you want to settle. Consolidated credit counseling is a much more affordable alternative.
So a debt reduction service might provide a temporary fix to your financial problems, but the amount of money you contribute is much higher than other debt assistance programs.
Speak with a certified counselor at ACCC today to figure out your plan! Call 800-769-3571.