Last Updated on January 22, 2023 by Faiza Murtaza
Getting out of debt is a journey. Like most journeys in life, attempting to take a shortcut could result in making the trip longer. That’s usually the case with debt relief services. They advertise themselves as “surefire” or “guaranteed” ways to eliminate debt. Don’t buy into the hype. The only way to truly be debt free is to simply pay off your debt.
To be clear, this is not a debt snowball vs debt avalanche conversation. Both of those are legitimate ways to be debt free which we’ll cover in the final section of this article. Before we get into that, it’s important for you to understand what not to do if you’re deep in debt. The following “solutions” will be tempting. We’ve outlined some reasons why they’re not worth it.
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External Debt Relief Options to Avoid
Have you ever felt like the online platforms you use are somehow “watching” or “listening” to you? Those ads that pop up seem to be more targeted than random. How do they know what you’re thinking about? The technology is called a predictive algorithm. Social media and search engines use them to feed you targeted ads based on your user behavior.
Do a search for “debt relief” and you’ll get assaulted with pop-ups, sidebar ads, and emails that promote the services on this list. You might get a few good pieces on debt payoff strategies like the snowball and avalanche methods, but the big money in this space is paid by external debt relief agencies. They’re trying to buy your business. Don’t confuse that with thinking they’re the right way to go.
1. Debt Consolidation Loans
Online lenders spend millions on advertising every year because they can. Between interest payments, origination fees, and service costs, they can afford to have a high cost of customer acquisition. They tell a good story too. Lump all your high-interest debt into one lower-interest loan and stretch out your payments. That just keeps you in debt longer.
2. Debt Settlement Programs
What is a debt relief program.Debt settlement agencies encourage their clients to stop making their minimum monthly payments on credit cards, forcing the credit card issuers to offer settlements for a fraction of the actual balance owed. If these agencies succeed, which most of them don’t, you’ll save a few dollars, but your credit score will be under 500 after all those missed payments.
3. Professional Credit Counselors
It’s astounding that there’s a successful business model for paid credit counselors. Folks who are in debt hire professional debt counselors who charge a fee, essentially putting them deeper in debt to get advice that’s available for free online. Think about that. You’re better off doing your own homework on debt options and implementing a payoff strategy.
4. Credit Repair Services
No one can “fix” your credit report if all the information on it is accurate. Credit repair services will claim they can have items removed, but credit reporting agencies only do that if you can provide documented proof that an entry is erroneous. Beware of credit repair services. Most of them are scams that practice illegal activities. If it sounds too good to be true, it probably is.
5. Filing for Bankruptcy
In fairness, there are scenarios where bankruptcy may be the only option. When creditors start to rumble about seizing assets like your home or automobile, talk to a financial professional about a bankruptcy filing. Do not attempt to do it on your own. There are consequences with bankruptcy that you need to fully understand before choosing this option.
6. Balance Transfers to Lower Interest Rates
This might seem like a good idea, but it can hurt more than it helps. Transferring a high-interest balance to a lower-interest credit card doesn’t change the amount of principal you owe. If the low interest rate is introductory, you will have to pay off your debt fast. All in, it may not be worth it if you have too much debt to tackle before the introductory rate expires.
The Debt Avalanche and Debt Snowball Debt Payoff Methods
If you’re buried in debt, here are two methods that can help you actually start paying it off.
There’s freedom in getting out of debt, provided you do it the right way. These two methods have been proven to be effective and won’t damage your credit score or keep you in debt longer than you need to be. Give one of them a try. That’s how you get real debt relief.