To say it is common for Americans to have credit card debt is an understatement. As USA Today reports, the average credit card balance has climbed to nearly $6,200 — and the average American as four cards in their wallet.
Credit card obligations are prime examples of high-interest, unsecured debt that is typically easier to take on than to pay back. While the rising cost of living has made buying on credit a necessity for many households, rising credit limits have also given cardholders more room to rack up debts.
Many Americans also find themselves dealing with unsecured debts in the form of medical bills and personal loans on top of essential expenses like housing, vehicles and utilities. The result? Many people are simply struggling to stay afloat financially these days.
Debt relief is one possible avenue to explore for borrowers buried in unsecured debts. This strategy has its pros and cons, as does any plan for escaping debt. Keep reading to learn more about what constitutes a good debt relief program and what services it can offer.
What Happens in a Debt Relief Program?
It’s important to know what to expect before deciding on any debt elimination strategy. The first step is figuring out whether you may be a solid fit for debt relief, also called debt settlement or resolution. Debt settlement companies typically only enroll unsecured debts, or those not tied to a physical asset. So, mortgages and auto loans are out.
The approval process for a debt settlement arrangement typically involves demonstrating a recent financial hardship, like:
- Layoff/job loss
- Reduced hours at work
- Medical costs
- A death in the family
If you decide to enroll in a debt relief program, you’ll be responsible for depositing a certain amount of money each month into a special account you control. These deposits will continue until you’ve amassed a certain amount — this depends on how much you owe and how much you’re able to save up. At that point, negotiators from your program will systematically contact creditors on your behalf and try to get them to accept a lesser percentage of your total balance to settle the account in full of a single payment.
After an agreement is reached, the money from your account will go toward satisfying your end of the bargain. And, of course, whichever debt settlement company you’re working with will take a percentage of the resolution as a fee. Debt settlement typically takes between two to five years, depending on your debt load, ability to make monthly payments and the creditor’s willingness to make deals.
Tips for Finding a Good Debt Relief Program
What we’ve just described is what typically happens under a good debt relief program, meaning one that’s reputable and well-equipped to help its customers.
Reputable companies will not collect fees up front. This is perhaps the biggest red flag of a scam. Legitimate companies will also clearly outline their fee structures to potential customers and provide all the information people need to make an informed decision before they sign up.
Stay away from companies making concrete promises about debt settlement outcomes. While industry leaders do have experience negotiating, it’s impossible to say exactly what’s going to happen. Any company providing false hope — “We guarantee we can settle your debt for just a few cents on each dollar!” — is more concerned with duping customers out of their hard-earned cash than providing genuine relief.
A good debt relief program can help you settle some or all of your unsecured debts for less; a bad company can take your money and run, leaving you worse off than before.