Though we discussed when you should seek the help of a debt relief company in our last chapter, Chapter 9: How to Find Debt Help, we have yet to touch on the pros and cons of hiring such a service in this guidebook.
There are many different types of debt problems. In fact, nearly everyone who is struggling with debt has their own specific problems and individual worries. Naturally, the relief methods that are best for one person will be different for the next.
For these reasons among others, it is essential that you know when hiring a debt company is for you and when going about things by yourself is a better choice.
Below we talk about the pros and cons of debt relief help. We focus on breaking down when a company is for you versus when DIY debt relief help is. We end things with a list of factors that are important to consider before making a decision either way.
Pros of Debt Relief Companies
The advantages of debt relief companies are patently obvious. Simply put, they help you reduce and get out of your debt.
Depending on the type of debt relief that you go with, your chosen company can help you net a much lower monthly payment amount with a lower interest rate. In some cases, part of your debt can be eliminated altogether, making it possible to pay back a smaller overall amount.
Basically, the pros of debt relief companies are simple. They make getting out of debt quicker and they make it easier. They make getting out of debt possible.
And figuring out your debt situation is the first step to getting back on the road to a debt free life, a life without constant worry and stress. (CreditSesame.com)
Cons of Debt Relief Companies
Though debt relief companies definitely have their pros, they also have their fair share of cons.
You will notice that there are quite a few more cons than pros. However, this definitely does not mean that using a debt relief service is not a good bet. It simply means that you need to think through the decision thoroughly.
The biggest negative of using even one of the best debt settlement companies is that it will negatively affect your credit score. When you consolidate, settle, or negotiate your debt, a negative mark will likely appear on your report.
If your credit rating is currently good, then this can be a huge negative. In fact, it is a factor that turns many people away from using a debt relief service. On the other hand, if your credit is currently bad (which there is a good chance of when you are deep down in debt), then the negative mark will not be as big of a deal.
Simply put, you need to decide for yourself if getting debt help is worth a negative mark on your credit report. For many people, it is.
Another con of using a debt relief company is that their pricing schemes are often more than a little confusing. You usually pay a monthly amount to the company who then divides it between your new payment and the company’s fees. The problem with this is that the amount going towards their fee is often not directly disclosed.
Of course, the easiest way to right this second con is by using one of the best debt relief companies around.
These companies often are much clearer about where your money is going. More information on the best debt companies can be found in our debt relief directory and our debt relief company reviews. (Chron.com)
Factors to Consider Before Making a Decision
There are quite a few factors to consider before deciding whether hiring a debt relief company is right for you.
A few of the most important of these factors include:
- The Severity of Your Problem – The most important factor to consider before making a decision is the severity of your debt problem. Because of the potentially ill effects of hiring a debt relief company, you should only do so if you really need to. You should only do so if you have been missing payments for months and months and are down deep in debt with no other way of getting out.
- Your Credit Score – As mentioned briefly above, it is important to consider your credit score before hiring a debt relief company. Using their services will almost always lower your score, oftentimes by quite a lot.
- Your Spending Habits – The reason that at least 75% of people are in debt is because they have poor spending habits. While debt relief can help you get out of debt, it will not help you improve your spending habits. This means that you have a high chance of falling back into debt again. The most effective plan of attack might be pairing a debt relief service with credit counseling.
- The Advice of Others – Once again, you are encouraged to seek credit counseling before making a debt relief decision. A credit counselor will give you the best advice possible, specifically tailored to your financial life.
It is always a good idea to be absolutely certain of whether or not you need to hire a debt relief company before doing so. They have their fair share of both pros and cons that need to be considered. (Nolo.com)
Hiring a debt relief company has pros and cons. It is important to consider both before signing up for such a service.
The information and advice provided above will help you make the best decision for yourself. It will help ensure that you are making the most of a debt relief company. It will help ensure that you make the right choice.
Stay tuned for Chapter 11: Laws, Amendments, & Acts Related to Debt in which we discuss these different laws and why they are important to you.
- CreditSesame.com, “Getting Out of Debt: Pros & Cons of Debt Settlement”
- Chron.com, “Pros & Cons of Debt Consolidation Companies”
- Nolo.com, “Debt Consolidation: Pros & Cons”