Definition
Debt relief is a term used to describe any activity that intends to reduce financial obligations owed by a debtor.
Analysis
Debt relief is one of the most overused and ambiguous terms in the financial services sector. Many organizations and companies promise debt relief, which can take a variety of forms with widely ranging rates of success.
Bankruptcy attorneys advertise debt relief through a bankruptcy filing. This may provide protection from creditors, but if the debtor is required to file Chapter 13 bankruptcy, then they may still have to repay most of their debt, plus expensive trustee fees while incurring a substantial drop in credit scores.
Debt settlement companies promise to provide debt relief and substantial savings through their program. However, debt settlement companies cannot provide relief from legal action. Additionally, their fees tend to be up to 25% of the total debt balance. Even if you save 50% on your debt, after paying their fees and income taxes on forgiven debt, you barely save anything through settlements. Credit reports reflect the negative status of settlement on each settled item.
Debt management companies may make promises of debt relief also. However, most debt management companies are for-profit corporations that provide limited counseling. Their primary activity is to sell debt management plans whether you need one or not.
Alternatively, a credit counseling organization is nonprofit. Their role is to provide direct counseling and to provide information on options to help you manage your debt. While they do maintain a debt management program, there may be other options also that they can discuss with you. Nonprofit credit counseling organizations can help you find relief from debt using the best method to fit your unique situation.
