A reader wants to help his mother, but he's scared he'll make the problem worse.
Question: My mother is elderly but has something like $12,000 in credit card bills 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 options are legit 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
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!
Howard Dvorkin answers…
This is one of the most common questions I hear. I answer it every year. (Here’s the 2017 version.) It’s also one of the most important questions I’m asked, so I’m not waiting long into 2018 for this year’s version.
One problem, of course, is that both terms sound so similar — throw in another term like debt management program, and it’s downright flustering. Another is that, as you mention, there’s a thriving market for hyperbole and even fraud in this industry. Why? Precisely because so many Americans are deeper in debt than ever before. It’s a target-rich environment.
So let’s deal with that first. Debt.com has a report called How Do I Know Which Debt Relief Company To Trust? I’d suggest following those five steps, or taking just this one: Calling Debt.com at the number on top of this page. We can introduce you to reputable agencies, because those we work with must adhere to our Code of Ethics.
Whatever you do, never sign up for any debt program based simply on a radio commercial or an unsolicited email. Like everything else in this world, there are far more good agencies than bad — but the bad ones tend to promote themselves the most, tainting everyone.
Now, about the differences between debt relief and debt settlement (and I’ll throw in debt management for good measure)…
Debt settlement is a type 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.
If you read the Debt.com report Debt Relief Programs for Every Type of Debt, you’ll see “debt settlement” is option number seven. That section begins, “Debt settlement is the most damaging option for your credit.” Why? Because in your case, Guillermo, your mother would be paying less than she owes, and that doesn’t endear her to future lenders.
A debt management program might help without affecting your mother’s credit. You can read more at Debt Management Program Pros and Cons. As you’re probably figuring out, every option has its good and bad. In fact, you mentioned bankruptcy, and how you want your mother to avoid that. Depending on her circumstances, that may be the best option. Once again, I direct you to a balanced report: The Pros and Cons of Bankruptcy.
If you’re confused, Guillermo, feel free to call Debt.com, which can refer you to a certified credit counselor who can talk you through these options. Best of all, Debt.com can refer you to bilingual counselors, so your mother can participate in the decisions ahead of her.
Have a debt question?
Email your question to firstname.lastname@example.org and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.
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Article last modified on November 29, 2018 Published by Debt.com, LLC . Mobile users may also access the AMP Version: Are Debt Relief Programs The Same Thing As Debt Settlement? - AMP.