Frequently Asked Questions

The following questions are the most common questions we are asked about regarding Personal Debt Relief.

Do Debt Relief Programs Work?

Debt relief programs work best when the type of program matches the debtor’s needs and financial situation. For individuals and households that have regular income but are struggling to meet their monthly debt payments due to high interest rates or overwhelming balances, debt relief programs through nonprofit credit counseling agencies have been shown to be highly effective at lowering monthly payments by negotiating with current creditors to reduce interest rates, leading to debt freedom in five years or less.

Debt relief programs are particularly effective in households that are recovering from a period of unemployment during which they survived on credit cards.

Households that have undergone a period of financially crushing medical challenges can also do quite well once the income-earner is fully employed and the medical bills are no longer multiplying. Debt relief programs can even work well for individuals and households with debts placed at collection agencies. Debt relief programs work out repayment plans with the collection agencies so that the collection account is not due in full immediately but rather paid off over one or more years.

Debt relief programs will not likely match well with the situation of individuals and households having no reliable income since participants in a debt relief program will be required to make regular monthly payments.

How Do You Qualify For Debt Relief?

There is no set standard for qualifying with Money Fit due to the credit counseling services provided being available, at no cost, to any individual seeking to improve their financial situation.

After the consultation, if you and your counselor decide to proceed with a debt management plan, the qualifications for our organization to be of assistance is that there are the following items in place:

There is an established hardship or need for the service. The debt added to the repayment program must be unsecured. You must show the ability to make one consolidated monthly payment. There is a maximum amount of debt, however, generally, we advise and show consumers how to repay the debt on their own if that amount is under $1,000.

How Does A Debt Relief Program Work?

Debt management programs, that have the consumers best interest in mind, will begin with a free credit counseling session, to determine the specific needs of the individual seeking help. They'll first address remedial issues such as building a workable household budget, providing free financial resources or guidance, then after a thorough review, decide what the best course of action to take.

If the program, also referred to as a debt management plan, is found to be a workable solution, the following steps are to explain how the plan works:

Debt accrued, such as credit card, medical, collection, or other unsecured debts are consolidated into one, typically smaller, monthly payment and sent to creditors once they accept a proposal.

The account, if it’s open and is a revolving line of credit, will be closed to further charging and to be paid off in an expedited manner.

Once an account is paid in full, the overall monthly payment remains the same, and the additional funds are distributed to the next account in line (typically either the next lowest balanced account, or the next highest interest rate affected account) in order to pay the total debt down as quickly as possible.

How Does Debt Relief Affect Your Credit?

Consumer programs that are designed to help an individual overcome their debt are typically offered by nonprofit credit counseling organizations. When enrolled in a debt management plan, the initial response shown on your credit report may be adverse due to the requirement of the accounts being closed. Typically, as the accounts are paid on time and in full, credit scores increase and improve as balances are reduced.

What Is The Best Debt Relief Program?

The best approach to achieving debt relief will usually lead the consumer through the following options:

Try to pay on your own, including negotiating with your creditors and the use of consolidation loans/balance transfers Work with a nonprofit consumer credit counseling agency Consider if debt settlement might be helpful, particularly with collection accounts Speak with a bankruptcy attorney

Repaying your debt on your own is the best first step because you minimize the fees you pay to others. If you cannot negotiate lower interest rates and repayment terms with your creditors, a credit counselor should be your next stop. What support is there for this recommendation?

While the government does not endorse or ensure the effectiveness of debt relief programs through private companies, congress recognized by law with the 2005 changes to US Bankruptcy code the value of debt relief programs through nonprofit credit counseling agencies. To minimize the likelihood of consumers having to file for bankruptcy when going through financially challenging situations, the law requires ALL potential personal bankruptcy filers first to meet with approved credit counseling agencies to review their situation and consider their debt relief alternatives to bankruptcy.

For individuals and households with a steady income who are dealing with or have already tried to work directly with their creditors but to no avail, debt relief programs offer the best possibility for success in repaying 100% of their debts over the short term (within 5 years or less).

Is Debt Relief A Good Idea?

Debt relief is a great option for relieving the major stress of indebtedness. Debt Relief programs help consumers to effectively and efficiently pay down 100% of their debt within 5 years or less. To ask whether debt relief is a good idea is to ask simultaneously the opposite question: is it a good idea to keep your debt and not seek relief? The obvious answer to both is debt relief is always a good idea, whether you achieve it on your own or with the help of a third party. Paying down consumer debts means less of your income goes to paying interest and more goes toward your top priorities.

Seeking third-party debt relief is a great idea when your current monthly minimum payments are unsustainable. This typically occurs when your interest rates are in the 20% range or higher, you have gone through a period of overspending, or you have been hit with medical debts or other overwhelming expenses. Debt relief programs can lower your interest rates into the low- to mid-single-digit range, leading to lower and more manageable monthly payments while also having you out of debt in five years or less.

Third-party debt relief may not be a good idea when you have more than sufficient income to pay your minimum payments, regardless of interest rates. Creditors are less likely to provide interest rate concessions if your budget appears to allow for making far more than just your minimum payments. Debt Relief programs can help with credit cards, collection accounts, medical debts, old utility and cell phone bills, store cards and other unsecured accounts.

What Is The Difference Between Debt Relief And Debt Consolidation?

Both terms can carry multiple means, depending upon whom you are asking. For this response, a debt relief program is offered through a nonprofit credit counseling agency (CCA). The CCA works with the consumer’s current creditors to lower account interest rates, effectively lowering the required monthly payment while accelerating the debt freedom timeline.

Quite often, such debt relief programs are referred to as debt consolidation programs because the CCA requires just one monthly, consolidated payment rather than a different payment for each of the accounts managed in the debt relief program.

Some consumers hear the term Debt Relief and think of a debt settlement or debt negotiation program that attempts to lower the amount of debt owed to the creditors. This type of debt negotiation leads to significant, negative effects on the consumer’s credit rating and should simply be called debt settlement or debt negotiations to differentiate it from debt management, credit counseling or debt relief.

As for debt consolidation, many consumers imagine it involves a single, new loan that pays off all other debts and then requires a single monthly payment to the new lender. To be clear, this should be referred to not just as debt consolidation but as a debt consolidation loan.

How Does A Debt Relief Program Affect Your Credit?

The FICO credit scoring model has not included participation in a Debt Relief program as a direct factor for more than two decades. That said, here are four possible indirect effects a debt relief program might have on your credit:

First, a debt relief program works with creditors to make your monthly payments more manageable, even if you have missed or been late on a payment or two recently or have gone over your credit limit. After just one to three months, most credit card and store card creditors agree to begin reporting your monthly payments as on time rather than late. Such positive changes in your account status can only help to improve the single most significant portion of the FICO scoring model: your history of on-time payments.

Next, the rare creditor may place a notation on your credit report that you are participating in a debt relief program. This notation has absolutely no effect on your credit score. What it does, though, is to notify potential creditors who are looking at your credit report that you are in the process of paying off your previous debts and that you ought to complete that program before getting into further debt. Depending upon whom you ask, this can be a positive or negative effect. For debt relief professionals and most of their clients, this is a positive action, since it minimizes the likelihood of the client getting into debt impulsively while in the debt relief program. Only for consumers trying to take out additional debt is this notation a nuisance. However, many creditors, such as mortgage companies and auto lenders may disregard this notation if they receive documentation that the consumer has made on-time payments to the debt relief program for the past twelve months or more.

Third, accounts placed on a debt relief program are closed to further activity. Closing an account may have no effect or a small, initial negative effect on the consumer’s credit rating, depending upon the account’s status prior to being placed on the debt relief program. For accounts that were already maxed out, an account closure may not influence the consumer’s credit rating at all. Otherwise, it may have an initial effect on the second factor in the FICO credit scoring model: balance-to-credit limit ratio.

Finally, throughout the debt relief program, as the consumer pays down his or her debt balances, any negative impact of closed accounts can be outweighed by the positive effect of lower balances. By the time they are debt-free with several years of on-time payments in their recent credit history, many debt relief clients may have credit scores in the top 10% of all consumers.