Debt Reduction Services Program

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Here are Just a Few of the Major Credit Card Companies Money Fit Works With for Consolidating Debt:

The Money Fit debt management program isn’t a new loan substituting your existing debts. We’re your ally, actively negotiating with your credit card companies to alleviate your financial burden.
debt reduction services
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.

debt reduction services

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

Frequently asked questions:

The following questions are the most common questions we are asked about regarding our Debt Reduction Services.

These programs work best when the type of program matches the debtor’s needs and financial situation. For individuals and households that have a regular income but are struggling to meet their monthly debt payments due to high-interest rates or overwhelming balances, programs through nonprofit credit counseling agencies have been shown to be highly effective at lowering monthly payments by negotiating with current creditors to reduce interest rates, leading to debt freedom in five years or less.

Debt Reduction Services programs are particularly effective in households that are recovering from a period of unemployment during which they survived on credit cards.

Households that have undergone a period of financially crushing medical challenges can also do quite well once the income-earner is fully employed and the medical bills are no longer multiplying. Debt Reduction Services can even work well for individuals and households with debts placed at collection agencies. Debt Reduction Services work out repayment plans with the collection agencies so that the collection account is not due in full immediately but rather paid off over one or more years.

Debt Reduction Services will not likely match well with the situation of individuals and households having no reliable income since participants in a debt repayment program will be required to make regular monthly payments.

There is no set standard for qualifying with Money Fit due to the credit counseling services provided being available, at no cost, to any individual seeking to improve their financial situation.

After the consultation, if you and your counselor decide to proceed with a debt management plan, the qualifications for our organization to be of assistance is that there are the following items in place:

  1. There is an established hardship or need for the service.

  2. The debt added to the repayment program must be unsecured.

  3. You must show the ability to make one consolidated monthly payment.

  4. There is a maximum amount of debt, however, generally, we advise and show consumers how to repay the debt on their own if that amount is under $1,000.

Debt management programs, that have the consumer’s best interest in mind, will begin with a free credit counseling session, to determine the specific needs of the individual seeking help. They’ll first address remedial issues such as building a workable household budget, providing free financial resources or guidance, then after a thorough review, decide what the best course of action to take.

If the program, also referred to as a debt management plan, is found to be a workable solution, the following steps are to explain how the plan works:

  • Debt accrued, such as credit card, medical, collection, or other unsecured debts are consolidated into one, typically smaller, monthly payment and sent to creditors once they accept a proposal.

  • The account, if it’s open and is a revolving line of credit, will be closed to further charging and to be paid off in an expedited manner.

  • Once an account is paid in full, the overall monthly payment remains the same, and the additional funds are distributed to the next account (typically either the next lowest balanced account or the next highest interest rate affected account) in order to pay the total debt down as quickly as possible.

Consumer programs that are designed to help an individual overcome their debt are typically offered by nonprofit credit counseling organizations. When enrolled in a debt management plan, the initial response shown on your credit report may be adverse due to the requirement of the accounts being closed. Typically, as the accounts are paid on time and in full, credit scores increase and improve as balances are reduced.

The best approach to achieving a debt-free life will usually lead the consumer through the following options:

  1. Try to pay on your own, including negotiating with your creditors and the use of consolidation loans/balance transfers

  2. Work with a nonprofit consumer credit counseling agency

  3. Consider if debt settlement might be helpful, particularly with collection accounts

  4. Speak with a bankruptcy attorney

Repaying your debt on your own is the best first step because you minimize the fees you pay to others. If you cannot negotiate lower interest rates and repayment terms with your creditors, a credit counselor should be your next stop. What support is there for this recommendation?

For individuals and households with a steady income who are dealing with or have already tried to work directly with their creditors but to no avail, nonprofit programs offer the best possibility for success in repaying 100% of their debts over the short term (within 5 years or less).

Debt Reduction Services is a great option for relieving the major stress of indebtedness. These programs help consumers to effectively and efficiently pay down 100% of their debt within 5 years or less. To ask whether it is a good idea is to ask simultaneously the opposite question: is it a good idea to keep your debt and not seek relief? The obvious answer to both is Debt Reduction Services is always a good idea, whether you achieve it on your own or with the help of a third party. Paying down consumer debts means less of your income goes to paying interest and more goes toward your top priorities.

Seeking third-party assistance is a good idea when your current monthly minimum payments are unsustainable. This typically occurs when your interest rates are in the 20% range or higher, you have gone through a period of overspending, or you have been hit with medical debts or other overwhelming expenses. These programs can help lower your interest rates into the low- to mid-single-digit range, leading to lower and more manageable monthly payments while also having you out of debt in five years or less.

Third-party assistance may not be a good idea when you have more than sufficient income to pay your minimum payments, regardless of interest rates. Creditors are less likely to provide interest rate concessions if your budget appears to allow for making far more than just your minimum payments. Most private or nonprofit programs can help with credit cards, collection accounts, medical debts, old utility and cell phone bills, store cards, and other unsecured accounts.

Both terms can carry multiple means, depending upon whom you are asking. For this response, debt reduction services are offered through a nonprofit credit counseling agency (CCA). The CCA works with the consumer’s current creditors to lower account interest rates, effectively lowering the required monthly payment while accelerating the debt freedom timeline.

Quite often, such debt reduction services programs are referred to as debt consolidation programs because the CCA requires just one monthly, consolidated payment rather than a different payment for each of the accounts managed in the debt reduction services program.

Some consumers hear the term debt reduction services and think of a debt settlement or debt negotiation program that attempts to lower the amount of debt owed to the creditors. This type of debt negotiation leads to significant, negative effects on the consumer’s credit rating and should simply be called debt settlement or debt negotiations to differentiate it from debt management, credit counseling, or debt reduction services.

As for debt consolidation, many consumers imagine it involves a single, new loan that pays off all other debts and then requires a single monthly payment to the new lender. To be clear, this should be referred to not just as debt consolidation but as a debt consolidation loan.

The FICO credit scoring model has not included participation in a credit counseling program as a direct factor for more than two decades. That said, here are four possible indirect effects a repayment program might have on your credit:

First, a repayment program works with creditors to make your monthly payments more manageable, even if you have missed or been late on a payment or two recently or have gone over your credit limit. After just one to three months, most credit card and store card creditors agree to begin reporting your monthly payments being made on time rather than late. Such positive changes in your account status can only help to improve the single most significant portion of the FICO scoring model: your history of on-time payments.

Next, the rare creditor may place a notation on your credit report that you are participating in a repayment program. This notation has absolutely no effect on your credit score. What it does, though, is to notify potential creditors who are looking at your credit report that you are in the process of paying off your previous debts and that you ought to complete that program before getting into further debt. Depending upon whom you ask, this can be a positive or negative effect. For credit counseling professionals and most of their clients, this is a positive action, since it minimizes the likelihood of the client getting into debt impulsively while in the program. Only for consumers trying to take out additional debt is this notation a nuisance. However, many creditors, such as mortgage companies and auto lenders may disregard this notation if they receive documentation that the consumer has made on-time payments to the program for the past twelve months or more.

Third, accounts placed on a program are closed to further activity. Closing an account may have no effect or a small, initial negative effect on the consumer’s credit rating, depending upon the account’s status prior to being placed on the program. For accounts that were already maxed out, an account closure may not influence the consumer’s credit rating at all. Otherwise, it may have an initial effect on the second factor in the FICO credit scoring model: balance-to-credit limit ratio.

Finally, throughout the program, as the consumer pays down his or her debt balances, any negative impact of closed accounts can be outweighed by the positive effect of lower balances. By the time they are debt-free with several years of on-time payments in their recent credit history, many clients may have credit scores in the top 10% of all consumers.

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Client Credit Report Authorization

You hereby authorize and instruct Debt Reduction Services, Inc. (DRS, dba Money Fit by DRS) and/or its assigned agents to:
  • Obtain and review your credit report, and
  • Request verifications of your income and rental history, and any other information deemed necessary for improving your housing situation (for example, verifying your annual property tax obligations and homeowner’s insurance fees)
Your credit report will be obtained from a credit reporting agency chosen by DRS. You understand and agree that DRS intends to use the credit report evaluate your financial readiness to purchase or rent a home and/or to engage in post-purchase counseling activities and not to grant credit. You understand you may ask any questions pertaining to your credit report. However, while DRS will review the information with you, the company is not able to furnish you with a copy of your credit profile. You hereby authorize DRS to share your information from your credit report and any information that you provided (including any computations and assessments produced) with the entities listed below to help DRS determine your viable financial options.
  • Banks
  • Counseling Agencies
  • Debt Collectors
  • Landlords
  • Lenders
  • Mortgage Servicers
  • Property Management Companies
  • Public Housing Authorities
  • Social Service Agencies
Entities such as mortgage lenders and/or counseling agencies may contact your DRS counselor to evaluate the options for which you may be eligible. In connection with such evaluation, you authorize the credit reporting and/or financial agencies to release information and cooperate with your DRS counselor. No information will be discussed about you with entities not directly involved in your efforts to improve your housing situation. You hereby authorize the release of your information to program monitoring organizations of DRS, including but not limited to, Federal, State, and nonprofit partners for program review, monitoring, auditing, research, and/or oversight purposes. In addition, you authorize DRS to have your credit report pulled two additional times to conduct program evaluations. You also agree to keep DRS informed of any changes in address, telephone number, job status, marital status, or other conditions which may affect your eligibility for a program you have applied for or a counseling service that you are seeking. Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Client Privacy, Data Security, and Client Rights Policy

NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a sta