Debt Reduction Services Program

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debt reduction services

Debt Reduction Services Program

Debt reduction services have been gaining popularity in recent years, and maybe you’re wondering if it is something for you to consider. While they are a solution, many warn against the risks involved. On the other hand, trying to settle a debt with what you have right now may not be feasible.

Understanding how these services work and if they’re effective can lead you to a better decision. It will also help you understand the best option when pursuing a debt payment solution.

What Are Debt Reduction Services?

Debt reduction services aim to lower or eliminate any outstanding debt you have. These companies negotiate with the lender and pay a lump sum lower than the original debt. By doing this, you are free from that obligation to the lender and can focus on rebuilding. It can help you avoid bankruptcy and deep debt.

You’ll still have to pay the lump sum or pay the service through a similar agreement but at a lower cost. The reduction service only helps you negotiate a lower price of the original debt.

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The Risks Involved in Debt Reduction

While most debt settlement companies operate under standards set by the law, it could still lead you to financial ruin if you’re not careful. Many of these companies charge you high fees as a part of your service. Not only will you have to pay the lower amount, but they’ll often add a 15-25% fee on top of that. For example, if you owe $10,000 and they negotiate it to $5,000, they’ll also add a service fee of around $1,000 to it.

Before getting into a reduction service, you’ll also need to consider if you have the income to pay for everything. A service will require you to put money into an account for a set period until you settle the debt. The terms might not be as friendly as the original debt. The timetable could also be shorter, and they could also charge extra interest or bring the case to court if you miss a payment.

Aside from that, you’ll also have to consider the tax consequences. The IRS considers the negotiation as forgiven debt. That means it can be taxable if the amount reduced reaches over $6,00. You’ll also have to pay tax on top of what you owe to the service. Aside from these risks involved, there are also unfavorable outcomes you have to know:

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    Negative credit: Settlements will often lead to a drop in your score. It will take you a long time to recover from that, and it doesn’t move away from your credit report for at least seven years.
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    Higher debt: Apart from the extra fees and the lump sum, the original creditor could still add interest because of late or missed payments. You could end up paying more than you expected.
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    Failed negotiation: No matter what the debt reduction service promises you, there is still a chance that the negotiation fails. If the creditor rejects the offer, then you’ll be forced to reach out for another plan. You’ll also pay for part of the service from the reduction company.

How to Reduce Risk

Money Fit by DRS has provided nonprofit credit counseling to consumers for over 22 years.

With a bit of preparation, you can reduce risk and avoid bad situations. That doesn’t mean that there will be no possibility, but taking extra steps can help you avoid losing more money. Here are some things you can do:

Take some time to research the debt settlement company and its track record. They should have a license which means they’ll follow the standards set by the industry.

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    Stay away from debt settlement companies that provide 100% assurance. There is never a guarantee when dealing with debt.
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    Ask about the details before committing to the service. These companies often have the fees, timetable, and other details in fine print or only mention them after the fact. You want to know what you’re getting into.
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    Review your income. Make sure that you can pay the reduced debt after the settlement completes. If you don’t have that capability anyway, the extra debt reduction cost won’t be worth it.

Money Fit by DRS has provided nonprofit credit counseling to consumers for over 22 years.

debt reduction services

Finding Alternatives

There is always a better option when it comes to debt reduction. You don’t have to settle with companies that promise you the world or hide their fees within large contracts. Here are some of the alternatives that work:

A Nonprofit Credit Counseling Organization

Seeking out an organization like this can help ease the financial pressure while avoiding costly fees. These organizations help reduce debt by consolidating it and negotiating with the lenders. What you get is a better payment plan, reduced interest, and the end of any late fees.

When you work with a counselor, they help you create a budget and recommend options to take for your case. You’ll see all the options available to you without having to worry about any hidden fees.

You can also get a more flexible time frame. It’s not uncommon for those in debt to finish commitments in five years or fewer thanks to the help offered by these organizations. If you’re seeking debt reduction, they are the best options.

Balance Transfer Card

The balance transfer only works if you have credit card debt. One way you can deal with it is to find a company that’s willing to transfer your debt to them with lower interest. Usually, these companies offer 0% interest for a set period, giving you time to pay off the debt without any additional costs.

However, only go with them if you believe you can pay what you owe within that time frame.

Consolidation Loan

A consolidation loan allows you to combine all your debt into a single payment, potentially lowering the monthly cost. You can seek out these deals with other lenders like banks or private companies. However, whether you get the loan will depend on their assessment. A good credit score will lower payments, though consolidation is also a noticeable benefit.

The Bottom Line

There are many services available, but many of them can end up eating your finances because of added fees. There is also no guarantee that the service can push through with its promises. You’ll have to take some time to research to reduce the chances of risk.

When it comes to debt reduction services, the best option is to seek out a nonprofit credit counseling organization, like Money Fit. Not only are they able to consolidate your debt, but you’ll also get a management plan to help you pay it off. It is an affordable alternative with no hidden fees, high-interest rates, or late fees. Seeking them out should be a priority if you want to eliminate your outstanding debt as quickly as possible.

Debt Reduction Services Program Available In the Following States