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Getting Out of Debt: The Truth About Debt Reduction

Here’s an unpopular truth: There are no quick fixes when it comes to knocking out debt. Remember the old tale of the tortoise and the hare? Yup—slow and steady always wins the race, especially in the battle against debt.

But that doesn’t stop people from looking for the easy way out of debt. Whether it’s signing up for a debt reduction service or transferring debt from credit card to credit card, people are always trying to speed up the process. And that’s exactly what keeps the “open” sign lit up in the debt reduction industry.

What Is Debt Reduction?

Debt reduction sounds simple on the surface, but it’s not as simple as it looks, especially when a third party is involved.

Basically, a debt reduction service promises to help clean up your debt mess by working with your creditors (for a fee). Usually, those promises come in one of two forms of “debt relief”: debt settlement and debt consolidation.

Debt settlement companies take the money you pay them and use it to negotiate with your creditors to reduce or eliminate what you owe. The problem is, they charge way more than you would pay if you just settled the debts on your own.

Debt consolidation companies combine all your debts into one single debt—usually at a lower interest rate. That sounds good on the surface, but they don’t really get rid of your debts. They just move them from one place to another.

The key thing to remember in both cases is that you really don’t need to pay someone else to do what you can already do yourself. Believe it or not, you actually have the power to call your creditors and negotiate on your own behalf.

Top Questions About Debt Reduction Programs

There are a lot of questions surrounding debt reduction programs and whether they actually work. Spoiler alert: they don’t. But here are the top debt relief questions and answers to help you sort through the lies as you search for debt relief.

Does Using a Debt Reduction Program Help or Hurt Your Credit Score?

If you’re repaying your debt through a credit counseling program or using a debt management plan, it won’t impact your credit score. But if you end up settling for less than the original amount of the debt, your credit score will almost always take a hit.1

But here’s the thing: Your credit score doesn’t really matter anyway. Gasp!

Yeah—we said it. And we know this isn’t a popular idea (even though it’s the truth!), but we’re used to ruffling feathers around here. Listen up: A credit score doesn’t show how well off you are financially or how great you are at managing money. A credit score is just an “I love debt” score. You don’t need a credit score to win with money.

Do Debt Reduction Programs Actually Work?

Here’s the harsh truth: Using a debt reduction service actually means you’ll be in debt longer.

Sure, you might think it’s a quick fix because it gives you some debt relief—but it’s only temporary. When you sign up, you’ll have lower monthly payments hitting you, but that doesn’t mean much. Why? Because the term of your loan is probably going to be longer—which actually means you’ll be making more payments in the long run. And more payments add up to more money and more debt.

Here’s an example:

Let’s say you have $30,000 in debt. The debt includes a two-year loan for $10,000 at a 12% interest rate and a four-year loan for $20,000 at 10%. Your monthly payment on the first loan is $471, and the payment on the second is $507. That’s a total payment of $978 per month.

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So, you talk to a company that promises to lower your payment to $541 per month and your interest rate to 9% by negotiating with your creditors and rolling the two loans together into one. Sounds pretty good, doesn’t it? Who wouldn’t want to pay $437 less in monthly payments?

But here’s the downside: It’ll now take you six years to pay off the loan. Six. Years.

And if that’s not bad enough, you’ll end up shelling out $38,935 to pay off the new loan versus $35,646 for the original two loans—even with the lower interest rate of 9%. This means your “lower payment” cost you $3,289 more. We’ve got one word for you: rip-off.

As magical as debt reduction services might seem on the surface, they won’t settle all your debt. So if you really want true debt relief, focus on getting rid of it as fast as you can!

How Can I Get Rid of My Debt Without Using Debt Reduction Programs?

We’re so glad you asked! You can ditch your debt yourself by following the 7 Baby Steps.

You’ll start by saving $1,000 for a starter emergency fund (Baby Step 1) and then move on to the big hitter (Baby Step 2): paying off all your debt (except the house) using the debt snowball method.  

With this debt reduction strategy, you pay off your debts from smallest to largest, paying minimum payments on everything but the little one. You throw all you’ve got at that smallest balance until it’s gone. When it’s paid in full, take the amount you were paying on it and throw it at the next-smallest debt. Remember: The more you pay off, the more money you’ll have to pay off debt—for good.

The debt snowball method works because it’s not just a fancy math problem. It’s about real behavior change.

If you’re trying to claw your way out of a financial crisis and don’t know where to begin, a financial coach may be what you need. Our coaches can guide, equip and encourage you to make the best financial decisions for your future.

How to Find Real Debt Relief

Want real debt relief? Who doesn’t? The only way to find true debt relief is by choosing—right now—to stop taking on more debt . . . and then doing everything in your power to pay it off.

Listen, debt reduction services might sound good on the surface, but they only keep you in debt—and take your money while they’re at it. Debt reduction services only deal with the symptoms of a debt problem, not the cause.

That’s why it’s so important to follow those Baby Steps. It’s the debt reduction strategy that actually works—you just have to stay with it. But it’s not just a quick fix (nothing ever is). You’ve got to choose to be intentional, focused and willing to work hard! Your progress will only move at the speed of your motivation.

But we know paying off your debt can sometimes feel like climbing to the top of Mount Everest without any training. Listen: You don’t have to do it alone. Connect with a trained financial coach. Talk through the mountain of work it feels like you have ahead of you—and break it into managable goals. Talk through the Baby Steps—and how to keep on the path. 

You've got what it takes to do this. And with a financial coach in your corner, you'll have even more motivation and encouragement to do this!

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About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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