Debt Relief Solutions - The Pros and Cons

Most decisions in life present us with two sides, multiple ways of looking at ideas, concepts or plans of action, the so-called pro and con analysis. A decision to choose which direction to go with your debt reduction is no different. While we'd be hard-pressed to find anything inherently "bad" about eliminating long-overdue debt or credit card bills that can't be paid, or burdensome bills that continue to mount; we do know there are both effective and in-effective ways to proceed.

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Creating a short list of the best debt-reduction pros and cons is not the intellectual equivalent of pulling teeth. The quest for debt consolidation, debt management and debt survival is eminently do-able. Regardless of what you may or may not have heard, we're going to try to remove the hassle of discovering your debt relief pros and cons. So let's get started.

Ask yourself this question: "What's the best way for me to end my debt problems?" If you don't have all the facts at hand to make an informed decision, know that you are not alone. Hundreds of thousands of debt-ridden Americans are struggling financially and are having trouble paying debts -- often high interest unsecured debt. It's a tough place to be, but important to take action and not to remain on the same debt treadmill for life.

Debt Consolidation

When it comes to debt relief, there is indeed a short list of pros and cons and while each person's set of circumstances will vary, there are general principles that apply to all. Let's assume you've got thousands of dollars in unpaid debts - mainly unsecured debt like credit cards. The monthly minimums have become impossible to pay-down and the interest is killing your life-style. You've thought about bankruptcy and yes, there are pros and cons there too, but let's examine debt consolidation pros and cons first.

When you consolidate debt, you're usually taking out a loan - called a debt consolidation loan. Typically, such a loan is secured by an asset, like a home, with the objective to borrow enough (from a bank, credit union or private money sources) against the home to pay-off debt and do so while enjoying a lower interest rate. This reduces the monthly payment and can also shorten the amount of time it takes to pay off the debts. That's a great, positive thing. Lower interest rate, shorter payback time, one convenient, and more affordable payment. These are the pros.

The cons - potential downside - to a debt consolidation loan is not always so apparent. Fail to pay your loan, let it get too far behind and you've put the house in potential jeopardy. Paying off un-secured debt with a secured debt may not be the best option for people who easily fall behind. For such people - those lacking necessary financial discipline - an overdue consolidation loan only compounds the pain of unpaid credit card bills - a real debtor-double-whammy. For those with the discipline and perseverance required, however, debt consolidation loans can be a life-line in stormy financial waters.

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Credit Counseling Agencies

If you're a debtor residing in Florida and looking to pay your debts in full, the Consumer Credit agency route, also known as CCCS, provides a debt-payoff strategy that, for lots of folks, works. Let's examine the pros - which are numerous. Elect to have a customized Debt Management Plan (DMP) and you'll be able to start reducing your unsecured debt, including credit cards, doctor offices, hospitals, clinics, club memberships, cell phone bills, and utilities -- hopefully at a lower interest rate and with one affordable lower monthly payment.

Trying to secure credit card company approval for your DMP, a reliable and disciplined agency should be able to design a debt relief program for you that, if followed faithfully, can help you become debt-free in approximately five years or less. That of course would be a positive in your favor. Add to that, agency-driven automatic distribution of your on-time monthly payments and this represents another benefit. A good, dependable credit counseling agency employing straight-forward CCCS techniques will make proposals on your behalf to credit card companies seeking lower interest rates, and likely ask for a waiving of late fees and penalties -- while, hopefully, securing lower, more affordable monthly payments. This can help debtors consolidate all unsecured debt, and most importantly, create one manageable payment.

The bottom line: Debt consolidation or debt management programs, if followed diligently, can help debtors get out of debt at an accelerated pace -- much faster than if you were to continue to pay only monthly minimums at higher interest rates. There is no magic or mystery to debt consolidation: 1) Stop using credit cards, 2) pay down existing debt on time at lower interest rates, and 3) debtors can reduce debt or eliminate debt at an accelerated pace.

Taking the credit counseling agency path can be a win-win for all: the consumer, credit card companies and all unsecured debt holders. Are there cons? A down-side? The short answer: You should be fine if you get on a plan that puts you on a predictable path to a debt-free date. As long as one finds and works with a reliable, trusted and proven credit counseling agency, things should go as planned. However, make sure you work with a highly rated and experienced debt consolidation company. It is always wise to check with several companies before you make your final decision.

Getting off the debt treadmill takes perseverance and determination and a debt relief company that can hold your hand while you take the steps necessary to become debt free. Also, it is important to note that these companies aren't GETTING YOU OUT OF DEBT. They are simply designing a debt management program that will meet your current financial abilities and it is UP TO YOU to remain faithful to that plan to be successful in achieving freedom from debt.

Many, if not most consumers, are not successful in debt programs, not because the programs are flawed -- but because the very same lack of discipline that got consumers in trouble in the first place often becomes the stumbling block each month in setting aside necessary funds to make the one consolidated payment to the credit counseling agency. When this occurs, unfortunately, creditors will typically rescind debt relief benefits granted and the consumer is right back in the same place as they started -- still in need of help. This is certainly not a "pro" but instead a "con" of credit counseling: People often fail because they do not live up to the terms of the program. However, despite this, responsible individuals going through difficult financial times can and do succeed and are often grateful that credit counseling was able to assist them.

Debt Settlement Companies

For many, going the "debt settlement" route can provide a welcome alternative to personal bankruptcy. As a form of debt relief, debt settlement differs greatly from debt consolidation. With debt consolidation, you are committing to pay back ALL THAT YOU OWE, hopefully at lower interest rates and at a pace you can afford. With debt settlement, the goal is to "settle" debt for LESS THAN YOU OWE. Typically, debt settlement involves the "setting aside" of money each month to accumulate a lump sum amount that can be later used to extend a reasonable settlement offer to credit card companies.

A successful settlement can certainly save a considerable amount of money - certainly a pro. So, what is the con or downside to settlement? While consumers are setting aside money and NOT PAYING their credit cards as promised, they could face legal action from creditors. In addition, credit ratings for consumers who fall behind will likely plummet. Finally, even if consumers are successful at getting a settlement for much less than is owed -- the money that is saved is subject to federal taxation.

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With all these downsides, why is settlement becoming so popular? Simply, for consumers at the brink of bankruptcy it may be a welcome and honorable alternative to defaulting entirely on their debt -- and while settlement can certainly damage credit, it does not have the same long lasting or severe an impact as personal bankruptcy.

The bottom line: When credit card companies decide to "sell off" what is termed "bad debt" to a debt collector, they will often get as little as ten cents on the dollar. It stands to reason, then, that credit card companies may be willing to accept a reasonable offer to settle from a financially-strapped consumer who is trying to do their best to pay what they can, when then can, in an attempt to avoid bankruptcy. Here is a quick review of the pros and cons of settlement:

The Pros of Debt Settlement

The Cons of Debt Settlement

Bankruptcy Pros and Cons

Bankruptcy is the most serious of debt relief options -- with its own pros and cons.

Bankruptcy Pros

Bankruptcy Cons

Bankruptcy is indeed a viable and important debt relief option, but should be carefully considered before proceeding.

Credit Counseling Agency, Debt Consolidation Loans, Debt Settlement, Bankruptcy -- are all viable choices, each with its own set of pros and cons. The bottom line for anyone seeking satisfactory debt-relief is choosing the method best suited to you, your situation and your comfort level. To find out more about debt relief options, you can get a free debt relief analysis and savings estimate - at no obligation.