Many companies are selling quick fixes for reducing debts. A slow and steady pace pays down debt best. People think debt reduction is easy in Newport Beach, California, and the rest of Southern California. Transferring debt between credit cards and signing up for debt reduction programs doesn’t usually reduce debt faster.
What is debt reduction?
Debt reduction usually looks like a simple solution with a third party helping. Debt reduction services promise to clean up debt messes and work with creditors. Debt relief is either settlement or consolidation. Many people turn to debt relief because they prefer to avoid bankruptcy. Debt settlement companies use the fees to negotiate with creditors, but the fees are more than the creditors would charge. Debt consolidation companies combine all debts into one place but don’t reduce debt. There’s nothing stopping people from calling their creditors and negotiating for themselves.
Does debt reduction affect credit scores?
People often use credit counseling or debt management and try to avoid bankruptcy. Debt reduction doesn’t impact a person’s credit score. Someone settling a debt for less than the original amount will hurt their credit score. Remember that credit scores aren’t as important as they seem. A credit score doesn’t show how well a person manages money or how much money they have. A credit score’s main job is to track a person’s debt.
Does debt reduction work?
Many people think debt reduction is a reliable way to eliminate debt. Debt reduction services will keep people in debt longer. The quick fix is only a temporary solution to debt. A company can lower the monthly payments, but the loan is usually the same price. A simple two-year loan could end up taking six years to pay off. Lower monthly payments can amount to thousands of dollars in extra fees.
There are ways a person can pull themselves out of debt without a third party. The first thing to do is start an emergency fund and keep adding to it. Try to have at least $1,000 aside for emergencies. Next, begin paying off excess debt with the emergency funds. People who pay more than the monthly minimum can reduce the number of payments.