Debt Reduction Services: Are They Legit?

debt reduction services

Debt reduction services sound amazing, but can you actually trust them? And if so, which ones can you trust? Debt management is an intricate field, and one that requires thorough understanding and expertise. Even those seemingly experienced “debt reduction” services can sometimes turn out to be shady scams that will leave you in a more dire predicament than before. Debt, especially serious debt, is no laughing matter…and this more often than not drives people to look for immediate solutions, which in turn makes them susceptible to unscrupulous companies looking for desperate individuals.

While there are some companies out there that you should never trust, some are legit and will help you manage debt effectively. The following will discuss how debt reduction services work, and how to identify the right ones.

Debt Settlement

Debt settlement (also referred to as credit settlement, debt negotiation, and debt arbitration) is a form of debt reduction where both debtor and creditor agree on a reduced balance to be regarded as payment in full. Over the course of negotiations, the debtor will make all payments to a debt settlement company, which will typically withhold payments to the creditor, even if payments have been made by the debtor.

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Once the debtor’s accounts default due to non-payment, the debt settlement service has leverage to forcing the debtor to accept reduced lump sum payments as settlement. This default will of course significantly downgrade the debtor’s credit score, especially if the debtor had a good payment record prior to the negotiation period. Even after the accounts have been settled, the default will still linger on the debtor’s record for 7 years. Despite this, many debtors still consider this form of debt reduction instead of filing for bankruptcy.

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People often confuse debt settlement with debt management or debt consolidation. Debt management and debt consolidation typically involve the consumer making monthly payments to the consolidator, who will deduct a nominal fee and pass the rest of the funds to creditors. This will ensure that creditors continue receiving their monthly payments. Debt settlement on the other hand involves the consumer making monthly payments, of which the debt settlement company will deduct fees for negotiations or legal work and payments made to the creditor. A debt settlement company may force the creditor to accept settlement less than what the debtor owes, and keep the difference.

Debt Management

A debt management company offers to negotiate lower monthly payments, lower fees and reduced interest charges for your debt. Contrary to debt settlement companies, a debt management company does not negotiate what you owe (i.e. your principal or total balance). While this form of debt reduction service doesn’t pose much risk as a debt settlement program, it’s widely recommended to do your research and know the details of such a program before getting yourself involved.

You may embark on a debt management program if you’ve enrolled for a credit program aimed at helping you get your finances in order, or if you’re experiencing trouble in making timely monthly payments. While most debt management services are non-profit, it doesn’t mean you should automatically them without conducting comprehensive research.

Debt Consolidation

A debt consolidation service consolidates your existing loans into a single new loan. The service normally comes with lower interest rates and/or monthly payments. For instance, you may consolidate debt from all your credit cards into a single credit card, or may consolidate your auto loans into a single loan payment.

Keep in mind that some so-called “debt consolidation companies” promote debt consolidation when in fact they actually offer other forms of debt reduction services, like debt management or debt settlement.

Before you embark on debt consolidation, consider whether or not you’ll be able to meet your payment obligations set in the contract. If after doing your math and looking at your budget, you still believe that you can do it…well, it may just be a good option for you!


A DIY debt plan gives you greater control over managing your debt. As the name suggests, you can execute it yourself, and it is customized to your personal needs, budget, and situation. There are dozens of free online tools that can help you reduce your debt to reasonable levels. If you opt for the DIY route, then you will want to make sure that your monthly payments are on time, monitor your debt reduction efforts and celebrate the progress you make. Read different reviews and conduct thorough searches for online tools before signing up in order to know what exactly you are signing up for.

The ultimate thing to take note of is that there’s no magic to fixing your debt. However, by doing your research and understanding what debt reduction services entail and what to expect will help you stay on a steady course in your debt reduction efforts and keep you from falling prey to scams or other unscrupulous companies.

Just as with any plan, success requires due diligence and discipline. Debt doesn’t accumulate overnight, and likewise it doesn’t disappear overnight. Ideally the most effective way to dealing with debt is to change spending habits and pay off any debt in a timely manner.


If ever you feel that debt is the major culprit in your financial problems, getting in touch with a reputable credit counseling agency may help. However make sure that the agency is certified and the counselor has spent a significant amount of time going through your financial situation before you sign up. A reputable credit counseling agency won’t only help you manage and get rid of debt, but will also teach you to create easy-to-manage budgets as well as money management skills.

Once again, do your research and find the right agency designed to suit your personal needs. After all has been said, the success of your debt reduction efforts will largely depend on you. As previously mentioned, research, diligence and discipline will be major attributes to the outcome of your efforts.

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  1. The best way to prevent the debt is not to not get in debt in the first place, but when you get to that you will have to work out with any way you can to save even one cent. I thank you for explaining the terminology because there are many people who don’t understand them and make huge mistakes when it comes to reducing their debt.

    • Absolutely! Proverbs 22:7 says “The rich rules over the poor, And the borrower becomes the lender’s slave.”. So you are correct, staying out of debt in the first place is the way to go.

  2. Thanks for this article! I got myself pretty deep in debt and DIY consolidation sounds like it might be the answer. Still nervous about it though.

  3. Bryan, loving your site! I went through your “5 steps to fixing finances” plan and learned quite a bit. Love your Christ centered approach. Quick question though, at what point in debt do you think consolidation is worth it?

  4. I honestly have a hard time trusting any company out there, even if they have good reviews online! With that said, if a persons debt is out of control, I guess they should get an expert to help out. I just don’t like giving my money to companies 😉


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