How to Find Good Debt Relief ResourcesRecently, the FTC stopped several student debt relief companies from operating after it found the companies were making false claims that they could reduce loan payments and even eliminate student loan debts entirely. Impetus Enterprise, Inc. and two related corporations charged customers upfront fees for debt relief, which is illegal, to the tune of at least $499 per person, and in many cases, didn’t actually render any services. People struggling with debt are a favorite target for scammers and unethical businesses, and with the average American carrying about $38,000 of personal debt, there’s no shortage of potential prey. Organizations that assist people with debt relief are out there, but finding them requires knowledge of where to look and the ability to recognize red flags that you might be dealing with a scammer or shady company. If you’re in debt and looking for help, here are several debt relief paths you can explore, along with advice on how to tell the good resources from the bad ones.

Credit counseling

Credit counselors can help you develop money management strategies to make your debt easier to handle, and hopefully keep you out of debt in the future. Reputable counseling services are staffed with trained and certified counselors, are transparent in where their funding comes from and what fees they charge, make their services affordable and personalize the help they give to your financial situation. They also offer a variety of solutions for different problems, such as budget workshops and credit report reviews. On the other hand, bad counseling organizations may employ counselors who are encouraged to sell you as many services as possible, charge high fees that they try to hide, only help you with your immediate problems without addressing long-term solutions or push a single solution for all clients (most often a debt management plan, or DMP). Many credit counseling organizations are nonprofits but nonprofit status does not automatically mean the organization is legitimate or affordable.

The FTC has a list of questions to ask potential credit counselors, which includes questions about fees, qualifications, licenses and any agreements you’ll have to sign. If a counseling organization is cagey about answering your questions, or charges money for its educational materials, that’s a bad sign. Before you settle on a counseling service, check with your state attorney general’s office and local consumer protection agencies to see if there are any complaints against them. In addition to looking for general credit counseling services, look for credit counseling specific to your situation. For instance, if you have a lot of student loan debt, you may be able to find an organization that offers free or low-cost counseling specifically for people struggling with student loans.

Debt settlement

Debt settlement (sometimes called “debt adjusting”) involves negotiating your debt with your creditors, hopefully to reduce the total amount you’re required to pay. Settlement can hurt your credit since you aren’t actually paying your debts in full, but it’s still better than defaulting on your debt completely or bankruptcy. You can negotiate debt settlements yourself, but there are also companies that will settle your debt for you, almost always for a fee equal to a percentage of the debt you enroll with them. Often, settlement companies will try to negotiate a reduction in your debt in exchange for a lump sum payment to your creditors and may require you to contribute money to a savings account they set up in order to afford this payment. They also sometimes request you do things that will hurt your credit or leave you deeper in debt, such as halting payments to your creditors in order to give the settlement company more leverage in negotiations.

Both the FTC and the Consumer Financial Protection Bureau advise that you consider all of your options before working with a debt settlement company, and that you should thoroughly research companies before using their services. Good things to look up are when researching a company are its fees, terms of service and any lawsuits against the company or its executive staff. Stay away from companies that charge you fees before settling your debts, promise a certain reduction or complete elimination of your debt, tell you to stop communicating with your creditors entirely, tell you they can stop debt collection lawsuits or claim there is a “new government program” to help you with your debt. As with credit counseling services, contacting your state attorney general’s office and local consumer protection agencies can help you see if there are any complaints against settlement companies you’re considering.

Keep in mind that the IRS often counts settled or cancelled debt as income for tax purposes. When you’re calculating how much money a settlement could save you, don’t forget to factor that in.

Debt consolidation

Debt consolidation is when you pay off multiple debts with a single loan or line of credit, which makes your debt easier to keep track of and can lower your interest rate. It’s sometimes billed as a service that debt relief companies offer, but like debt settlement, you don’t have to work with a debt relief company consolidate your debt. Doing your own debt consolidation can save you a lot of money, though it does require doing some research and a bit of math to see which consolidation options will actually improve your situation. If math isn’t your strong suit, there are many debt consolidation calculators on the Internet that can help.

When looking for debt consolidation options, generally you’ll be choosing between a loan and a credit card balance transfer. There are multiple loans that can help with debt consolidation, including personal loans, home equity loans and direct consolidation with the U.S. government for federal student loans. When considering a loan, beware of lenders who only tout low monthly payments rather than low interest rates or flexible terms. Lowering your monthly payments only makes sense if you can’t afford your current debt payments, as it can cost you more money in the long-run since you’ll probably stay in debt for longer. For balance transfers, consider how long any 0% intro APR offers on the card last, and how much interest you will have to pay after they end. Credit card interest rates tend to be fairly high, so ideally you should go with a balance transfer when you’re confident you can pay off most of your balance before you have to start paying interest. Whether you choose a loan or balance transfer, make sure you read the associated terms so you aren’t surprised by any unusual fees or conditions.

You may have to sift through some shysters and fraudsters to find legitimate help with your debt, but rest assured that help is out there. For more guidance on how to manage your money, follow our personal finance blog.