Are debt relief programs safe?
Credit card debt is a growing concern in the U.S., with total credit card balances rising by $50 billion to $1.13 trillion in the fourth quarter of 2023. This uptick in credit card debt is likely playing a significant role in the amount of non-mortgage interest Americans are paying — which amounted to about $573.4 billion as of January 2024.
High credit card balances and interest payments can lead to financial hardship. If that's the case for you, debt relief could be a solution to consider. But, are debt relief programs safe?
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Are debt relief programs safe?
There are many reputable debt relief programs available, but there are some red flags to look for when trying to avoid potential scams. In particular, you should be wary of debt relief companies that contact you via unsolicited phone calls or pressure you to sign up for their services.
Companies that charge upfront fees and make unrealistic promises are other red flags to consider. In fact, debt relief companies are not allowed to charge upfront fees before doing any work on your case; these companies are only allowed to charge fee for the debts they've negotiated. So, if a company tries to charge you for work that hasn't been done yet, it's a red flag to take note of.
However, if you do your research — and you're cognizant of the red flags mentioned above — you should be able to find safe debt relief solutions.
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Why you should consider using a debt relief program now
"Debt relief programs can be very beneficial," says Dawn-Marie Joseph, founder of Estate Planning and Preservation. "They can be the extra push you need to eliminate or pay down debt."
Here are a few reasons to reach out to a debt relief service now if you're struggling to make your payments:
You could get out of debt faster
If you're making minimum payments on large balances, credit card debt may take years or decades to pay off. That's because credit cards usually come with high interest rates and the minimum payments you make primarily go toward interest charges.
But a debt relief program may be able to reduce the time it takes to pay off your debt. For example, some debt relief companies can try to help you resolve your debts within 24 to 48 months.
You may get lower monthly payments
A debt relief program may be an attractive solution if you're having a hard time making your minimum credit card payments. That's because "these programs can help you obtain lower interest rates that can ultimately lower your payments," says Joseph. In some cases, debt relief providers may even be able to negotiate lower principal balances with lenders on your behalf.
In either case, you'll likely qualify for a lower total monthly payment by utilizing a debt relief program.
A portion of your debt may be forgiven
If you opt for a credit card debt forgiveness program, you may not have to pay the full amount that you owe. These programs negotiate with your lenders to lower the total amount you owe on your credit cards. While this can be a big benefit in certain cases, there are some drawbacks to consider.
Credit card debt forgiveness programs can negatively impact your credit score for a couple of reasons. First, you'll be advised not to make your credit card payments and pay your debt relief provider instead. Your payments will be held in a special-purpose savings account instead until it's time to settle your debt.
And, once your debts are settled, the credit card companies will generally report them as being settled for less than what was owed, which can damage your credit score. You may also have to pay income tax on the portion of your debt that's forgiven as part of the settlement.
However, if you're facing overwhelming credit card debt and don't see a way to pay it off, the temporary damage to your score could be worth the relief that credit card debt forgiveness programs can provide.
The bottom line
There are plenty of reputable debt relief programs to consider if you're struggling with credit card debt. As you compare your options, though, it can help to be cognizant of the red flags outlined above. In general, you should avoid enrolling in a service as part of an unsolicited phone call, should not pay upfront fees and should be wary of anything that sounds too good to be true. Or, if you need of debt relief, simply contact one of these trusted providers now.
