The Dangers of Debt Elimination Programs

You may be able to get rid of debt on your own

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Debt elimination programs promise to wipe away your debts. Many of these programs are legitimate, but the debt elimination industry is notorious for scams of which consumers should beware. Before you sign up for a debt elimination program, learn about the dangers, especially which programs to sidestep because they will do more harm to your financial situation than good.

Getting rid of debt is an admirable goal as the nation's economy bounces back from the Great Recession.

Wages aren't rising as they once did and the cost of housing is prohibitive in many big cities. That said, there are a few ways you can eliminate debt yourself if you're wary of signing up for a debt elimination program. To find out more about how to take charge of your debt independently, get the basics on debt elimination.

The Cost of Debt Elimination Programs

Nothing is free, including debt elimination programs. So to hire a debt elimination company, you’ll have to pay a fee. If it’s a legitimate operation and you don’t have the time to do things yourself, it may be worth the cost. However, you’re paying for something you could probably do yourself, as typically debt elimination companies will contact your creditors and agree on a fixed rate that you will pay over time until the debt is eliminated. Nonprofit debt elimination programs may charge lower fees to help you tackle payments.

Beware of Debt Elimination Scams

Some debt elimination programs are not worth the money -- no matter how little they cost.

You could end up with a shady operation that ruins your credit and involves you in illegal activity. You’ll lose the money you paid them, you’ll have legal consequences, and your credit may suffer worse than it would have if you did nothing.

Keep an eye out for anything that sounds too good to be true, because it probably is.

Research any company you plan to sign up with online first. Read customer reviews. If each review gives the company a five-star rating, that might be a sign of a scam. If you see a range of reviews--from positive to mixed to negative--give these more weight; they are most likely legitimate. You might also consider contacting an agency like the Better Business Bureau to see if any complaints have been filed against the company there.

Is the Program a Band Aid or a Cure?

Using a debt elimination program may help you fix a problem today. However, you may run into the same problem later if you don’t change your behavior, understand your finances and learn about the consequences of spending. Moreover, if there are emotional reasons for your spending, or you have a shopping addiction, you may need to join a support group or get psychological help to kick your spending habit.

A debt elimination program may be a short-term fix that allows you to create more long term pain. If you do the difficult work of budgeting, controlling spending and making sacrifices, you’ll come out way ahead of where any debt elimination program leaves you. Research financial planning for ideas on how to take control of your finances for the long term.