There is no such thing as a quick fix when it comes to paying off your debt including debt reduction services.
However, debt reduction services can feel like a dream come true during tough times.
Kind of like a Fairy Godmother that can wave her wand and make our pumpkin of debt look like a beautiful carriage that will whisk us away to financial freedom.
But looks can be deceiving and debt reduction services can make a lot of promises from negotiating with creditors, helping you get out of debt, and even making those debts disappear altogether.
The truth is that you can sometimes end up deeper in debt than when you started after working with a debt reduction service!
That beautiful carriage can turn back into that fat pumpkin of debt real fast along with a host of more problems and even more debt.
So don’t put on your party shoes just yet…you’ve got to put the work into making sure that debt reduction services are actually what you need and if not, what to do next.
Here is what you need to know about debt reduction services before you decide to use one.
What Are Debt Reduction Services?
Before we uncover a few truths about working with a debt reduction service, you need to understand what debt reduction services are.
Debt reduction services will promise you, that for a fee, they can help you get out of debt and clean up your situation by working with your creditors.
They have many “methods” for reducing or eliminating your debt. But even when successful, they will usually charge more than you would have paid to settle the debt on your own.
Usually, you’ll receive an envelope in your mailbox that says they will negotiate down your debt for a fraction of what you owe. It sounds so good, and you may even know someone who negotiated down their debt which gives you a false sense of hope.
Here are a few truths you need to know about working with a debt reduction service.
Be Aware Of The Fees
While debt reduction services may promise that they will save you money in the long run, their services are not free.
Some of them may even make you pay hefty fees for their services before they even start anything.
These fees will only put you further in debt, for little reward.
If you are considering working with a debt reduction service, you should stay away from any of them that require payment upfront.
When we worked with a Christian Credit Negotiation Company, they charged us $35 per month. They called all our credit card companies (we had 5 that had balances at the time) to negotiate a lower interest rate.
Because we were paying less interest monthly, the $35 fee was less than what we paid.
However, I honestly feel that we could’ve called our credit card companies to negotiate the lower rate ourselves.
Debt Reduction Services Are Notorious For Dishonest Claims
Many of these companies will trick their customers to get new clients on board and to hand over their money.
Some of their best tactics include “settling” debts for only a small percentage of what you owe or new programs that are aimed at people just like you.
Each debt situation is unique, and there isn’t a one size fits all equation for paying off your debt.
No service can 100% guarantee any outcome, and those promises are a lie. Again, if they ask for you to pay them up front, then they are trying to scam you.
Debt Reduction Services Can Actually Damage Your Credit
Many debt reduction services may advise you to stop making payments or ask you to stop communicating with your creditors when you start working with them.
I was skeptical when they asked me to do this. So I asked them if I could refuse that part of their services. James and my credit were not bad because we had not missed any payments. I didn’t want a credit service to do any damage to our credit while we were negotiating to pay them less.
If you stop paying your bills you will hurt your credit score. That is a fact. You need to speak to your creditors directly, not someone on your behalf who has no stake in your financial outcome.
One of the best ways to get out of debt is to keep open communication between you and your creditors. Any company who is telling you to stop talking to them should be avoided.
Their Advice Can Make Your Situation Worse
Listening to the information given to you by these debt reduction services can leave you in a much worse place than when you started.
The reason is that not making payments, or not communicating with your credits can mean late fees, interest penalties, as well as many other charges.
If your debt reduction service does not perform, you’ll be the one left paying the fees.
What To Do?
If you feel buried by your debt, but have no idea where you should turn, you don’t need a credit counseling service, you need a budget!
I know you don’t want to hear that, but figuring out how much money you have and where you are spending it each month will help you manage your debt. And get RID OF IT quicker.
A debt reduction service sounds like it’s too good to be true, and it is. If they come through with their promises of reducing your debt, you end up with BAD CREDIT. It ruins your ability to buy a car or home for years.
Don’t fall for their lies. Thankfully, after six months of using the debt reduction service, we fired them. We decided to consolidate all our debt by combining it into one balance transfer. Then we paid it down each month until it was gone.
If your credit is in good shape, consider a balance transfer to help you pay off your card quicker. While this won’t be a permanent solution, it can help you pay down your debt faster. And it will help you feel like you are making progress instead of stuck where you are.
No matter what debt situation you may find yourself in, there are some better alternatives to a debt reduction service.
So unless you already have a Fairy Godmother, it’s time to put the party shoes back into the closet and get to work to find a better solution to paying off your debt! (And if you do have a Fairy Godmother, I totally expect you to share her!)
Before you use them as a last resort, check out our other articles on paying off debt:
• How to Pay Off Debt When Living Paycheck to Paycheck
• How to Live on One Income AND Pay Off Debt
• How To Pay Off Your Debt Faster
• How Giving More Can Get You Out Of Debt Faster
• How The Debt Snowball Method Works
• Tips To Pay Off Debt Even When You Are Broke
• Mistakes To Avoid When Trying To Get Out Of Debt
YOUR TURN: Do you have any other questions about a debt reduction service? Ask me in the comments below and I’ll respond right away!
More Fun Articles To Read:
Being in debt can make it feel like you are pushing along without the means to help others or giving to the poor. And it becomes even more apparent when the holidays come around because that's when it feels like every organization and person you meet is looking for...read more
You may be looking at your budget and feel like all your money is going toward paying bills. Sure paying your mortgage, student loans, car loans, and credit cards are all necessary payments, but if you are in debt, it can feel like all you’ll do with your money is put...read more