Why Most Debt Relief Programs Only Have a 50% Success Rate

Equity loans, credit counseling, debt consolidation, bankruptcy, and debt management plans are some of the options available to consumers today that are overwhelmed by outstanding debt. Although these programs all attempt to help consumers manage their debts effectively, many people do not dispose of their debts through these programs. So why do 50% of consumers fail to eliminate their debt using one of these programs? All of these programs have one fault in common that causes them to fail for the majority of people.

You may be thinking that it is the interest rates, the quality of the companies, or the fees that cause people to fail to eliminate their debts when using these programs. It is none of these, however. The main issue with most debt management programs is that they require you to pay a fixed amount every month with no exceptions.

So why are fixed monthly payments a problem? The average consumer does not have the exact same income every month. Seasonal workers only work for part of the year and therefore make more during those times than they do during the off season. Commissioned salespersons depend entirely on sales for their income - the more they sell the more they make and vice versa. Part time workers often have variable hours and thus a variable income. Other workers may have overtime hours periodically.

Now take a moment to think about your expenses. With the exception of your rent or mortgage and your car payments, do you spend the same amount of money every month? Probably not. Monthly bills such as your phone bill and utility bill can vary from month to month. Other expenses such as medical bills and car repairs can arise unexpectedly, possibly leaving you short on money by times.

A variable income and fluctuating expenses may not be a problem if you have money left over at the end of each month and additional money in your budget to allow for unforeseen circumstances. Most consumers, however, are having difficulty paying their bills and are living from one paycheck to the next. In such a situation unforeseen expenses may severely damage one's budget.

Most people have good intentions upon entering a debt relief program. For example, let's take a look at credit counseling. You need help managing your credit card debts so you enter a credit counseling program. Your counselor negotiates a monthly payment of $500 which sounds good to you. At first everything is going smoothly - you are able to make that $500 payment every month for the first several months. Then the water heater breaks and it will cost $800 to fix it. So, unless you enjoy cold showers, you will have to miss your $500 payment to the credit counseling agency this month and will only have enough money for a portion of next month's payment. This may leave you in a worse financial position than before, since you absolutely cannot miss any payments when you are in a debt relief program.

Most debt relief programs are inflexible. The majority of them do not make allowances for emergencies such as car repairs, medical emergencies, or any other unforeseen circumstances. You cannot call the court trustee, your loan officer, or the credit counseling agency and tell them that you will not be able to make your payment this month. If you could, then these programs might have a higher success rate.

There is one program available that offers the flexibility needed for today's consumers. It is called debt negotiation, or debt settlement. It is ideal for people who are having trouble making their monthly payments and are faced with overwhelming debts. In some instances it may be better alternative than bankruptcy, which can negatively impact your credit rating for at least seven years and make it nearly impossible to obtain financing during that time.

Why is debt settlement such a flexible option? The answer to this question is quite simple: you control the money. A separate savings account is set up for you and you put money in it until there is enough to make a practical offer to one or more of your creditors. This is the most flexible of the debt management options available to consumers, but it does have some disadvantages. The monthly payment is deposited into an account that is set up and controlled by you purposely to repay your debts. If you have a tough month financially it means that you have less money to negotiate with. If you are able to make up the difference later, that is great and you will have more money to settle with. If not, that is how life goes sometimes. Once you have enough to negotiate one account (generally between 35% and 50% of the total balance owed), it is time to make an offer. If your creditor accepts the offer, you can start to save money to approach the next creditor, and so on.

Keep in mind that debt settlement will not eliminate all of your debt problems. However, if you have to miss a payment because of an emergency the program does not end. If other debt management programs were as flexible then there may be a higher success rate and perhaps fewer people would feel the need to declare bankruptcy.

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