While most Americans have debt, everyone’s financial situation is different. Thus, there’s no universal solution to it. The approach that works beautifully for one person may not be the right fit for their neighbour.
Take debt relief, for example. Some consumers decide to work with a debt relief company as a solution to major unsecured debt — such as credit card balances, personal loans and medical bills. And some people find success using this strategy, settling one or more of their delinquent accounts with creditors.
Here are three reasons why some people decide to go the route of enrolling in a debt relief program.
1. DIY Debt Repayment Isn’t Always Enough
Do-it-yourself debt repayment is the first avenue you should explore when assessing how to tackle your debts. But if you’re already stuck in a cycle of making minimum payments, DIY debt repayment will take a long time — and interest will cost you a pretty penny over the course of the process.
According to the minimum payment calculator from Bankrate, a $5,000 credit card balance at 19 percent interest will take more than 17 years to pay off making minimum payments (three percent). It takes a long time and costs more in interest because minimum payments only stave off late fees and delinquency; they do very little to actively pay down your outstanding balance.
DIY debt elimination isn’t always enough to take on significant debt in a timely, affordable manner — especially if you find yourself strapped for cash following medical expenses, loss of income or a change in your family situation.
Here’s how Freedom Debt Relief co-founder Andrew Housser sums it up: “Not everyone can just tighten the budget to pay off their debt.” Over 600,000 people have enrolled in Freedom Debt Relief since 2002, and the organization has negotiated more than $11 billion in debt.
2. To Let the Professionals Handle the Negotiations
Negotiating with creditors can be downright intimidating, especially if you’ve never tried. While it is an option to pick up the phone and call your creditors directly, many people prefer to leave this task to a team of professionals with experience doing it and pre-existing relationships with creditors. Part of enrolling in a debt relief program is gaining access to consultants and negotiators to help you through the process of settlement.
Whether you want to work within a structured program or attempt to negotiate on your own is your preference. It’s similar to how some people change the oil in their vehicles at home, while others prefer paying a fee to have trained mechanics complete the process for them.
3. To Avoid Bankruptcy
Debt settlement is an alternative to bankruptcy, which is generally seen as a last-ditch financial effort. While debt settlement can negatively affect your credit score until you’ve settled your debts and can begin to rebuild, bankruptcy tends to leave a bigger black mark on your credit history — even staying on your report for seven to 10 years depending on whether you file Chapter 7 or Chapter 13 bankruptcy.
Some people simply decide to move forward with debt settlement because they feel like they’re stuck between a rock and a hard place: DIY debt repayment will take many years and require hundreds or thousands of extra dollars in debt, but bankruptcy will bring consequences like losing some assets and deeply harming your credit score. Debt settlement is one potential strategy to explore if you find yourself in this financial situation.
Some consumers decide to work with a debt relief company for help negotiating down what they owe, to speed up the repayment process with the hopes of settling debts for less and to avoid bankruptcy.