A reader wants to help his mother, but he's scared he'll make the problem worse.
Question: My mother is elderly but she has something like $12,000 in credit card bills that she can’t pay off. She asked me what she should do, so I started looking into it. But I can’t easily figure out which debt relief programs are reliable and which are scams.
Then there are all these references to “debt relief programs,” but they seem interchangeable with “debt settlement programs” in some of the websites I visit. It’s very confusing. How can I figure out what’s for real? I don’t want to help my mother right into bankruptcy, and she doesn’t speak English. So I feel responsible for solving this.
— Guillermo in New Jersey
This is one of the most common debt questions that I get because some companies use terms interchangeably on purpose to confuse people. You think you’re getting one solution, but you’re really signing up for something entirely different. It’s important to understand these terms so you can make sure you get the right help for your mother’s situation.
Are Debt Relief Programs The Same Thing As Debt Settlement?
You’re right Guillermo, the financial world can be a very confusing place.
Thankfully, I can break it down for you in plain English, and I can even direct you to some free help that won’t take advantage of you or your mother. Debt relief is a general term that covers many options that can mean deferment, which temporarily suspends your debt payment. It can mean refinancing, where you permanently change the terms of your debt.
It can mean debt settlement. Debt settlement is like the fire extinguisher of debt relief. You should only use it in emergencies. Why? Because it hurts your credit score. Basically, you’re settling your debts for less than what you owe. So you’re saving money now, but you might be costing yourself more in the long run. If you want to buy a house or a car, later on, you might get hit with a higher interest rate because you have a lower credit score.
Before you sign up for a debt settlement program get a free debt analysis from Debt.com. You might actually find some other debt relief options work better for you, and don’t forget to sign up for our newsletter and subscribe to our YouTube channel!
Debt settlement is a type of debt relief.
Debt relief and debt settlement are often used together in ads because debt settlement is a form of debt relief. I realize that sounds confusing, but it’s akin to saying Navy Seals are part of the Navy, but not the other way around. The Seals are a special force within the Navy. Likewise, debt settlement is one weapon in debt relief.
Let’s define debt relief first…
Even filing for bankruptcy can be a form of debt relief because it helps you get out of debt.
As you see, debt settlement is not the only type of debt relief you can get. The misleading part comes in when debt settlement companies use words like “consolidation” and “debt management” because those are different solutions entirely.
Settling your debt…
Debt settlement only pays back a portion of what you owe. This will cause some damage to your credit score for each debt you settle. But its often the fastest, cheapest way to get out of debt without declaring bankruptcy. So, it’s not that it’s a bad solution. It’s just you need to know what you’re signing up for so you can have the right expectations going in.
As I say, some debt settlement companies mislead people into thinking they’re signing up for debt management or consolidation. Then those clients are shocked when they realize their debt relief solution is damaging their credit. It’s critical to ask questions to make sure what you’re getting into before you or your mother sign any paperwork.
Consolidate your debt…
Consolidation reduces the number of creditors you owe. By bundling all the old debt into a new single bill you can reduce interest and hassle. Both consolidation loans and balance transfers require “new” debt and good credit. A debt management program is offered through a credit counseling service, without the need for good credit. All are solutions that pay off balances in full. This helps you avoid damage to your credit score as you work to get out of debt.
Getting a clear answer on the best debt relief option to use
If you’re confused, Guillermo, feel free to call Debt.com at . We can refer you to a certified credit counselor who can talk you through the various options for debt relief. Best of all, Debt.com can refer you to bilingual counselors, so your mother can participate in decisions that are ahead of her.
Talk to a certified credit counselor to find the best debt relief option for your needs.
Published by Debt.com, LLC