Debt Elimination Mistakes

Debt elimination is advertised as a way for you to get rid of your debt immediately without actually paying back your debts. There are many companies that exist solely to help you with debt elimination. However, many of them have come under scrutiny because they essentially charge you an upfront fee in order to obtain documents that appear to absolve you of your debt or a kit that shows you how to write to your creditors and challenge your debt. But this, in fact, almost never works. Why? Because most companies advertising “debt elimination” are nothing more than scam artists selling you a dream. You end up losing the upfront fee and getting served with phony documents.

While debt elimination is one part of the process that any esteemed debt counseling will provide, it is never the only thing a company should provide for you. Keep reading to learn about the mistakes people often make in order to get themselves into debt in the first place—and the mistakes they should avoid as they try to get out of it.

8 common mistakes in getting into debt

People get into debt for many reasons. They are irresponsible with their credit. They rely too heavily on credit cards. They make poor choices in saving and investing money. Or they simply don’t know how to create a budget. Here are some of the most common reasons people find themselves in debt with no way out.

Charging everything to your credit card: You know this person. They use their credit card to buy groceries, clothes, electronics and vacations. They spend and spend and spend until they hit their limit. And then they have no plan to pay down their debt. A credit card can be a valuable tool when used properly. When it is abused though, it can kill a credit score almost instantly.

Failing to budget money properly: Every month, you should have an idea of how much money you’ll need to pay for housing, food, clothing, etc. Set a limit and stick to it. Make sure you set aside some money for savings as well.

Signing up for the first credit card you see: The key to getting a good deal on a credit card is shopping around to find the best annual percentage rate (APR). You’ll be glad you did when you’re trying to pay off your debt.

Neglecting debt when it starts: Most people who struggle with debt do so because they refuse to get help at the first sign of trouble. Before long, they end up with a grip of credit cards and a mountain of debt. There are other options. Don’t let your debt snowball on you.

Refusing to try debt consolidation: Debt consolidation is a great way to eliminate debt quickly and easily without hurting your credit report. See below to learn more about it.

Ignoring debt settlement: If you find yourself making money but still struggling to pay off debt, debt settlement (also called debt negotiation) is another way to go. It allows you to pay a portion of your debt in order to be excused for the whole balance. It does require a lump sum payment but can be effective for those who can afford it.

Filing for bankruptcy too quickly: Bankruptcy should ONLY be used as a last resort. Turning to it too quickly is a huge mistake. Seek out other options first and find a way to eliminate debt without hurting yourself in the long run.

Not observing your credit report: Every year, Americans are entitled to a free copy of their credit report. Too many of them don’t take advantage of this law though. Get your copy today and see how you stand when it comes to your credit score.

The biggest debt elimination mistakes to avoid

In this clip, you’ll hear more about some of the biggest mistakes you can make when you decide to eliminate your debt.

The difference between debt elimination and debt consolidation

There is a huge difference between debt elimination and debt consolidation. Debt elimination is billed as a way to get out of debt immediately by challenging the validity of the debt you owe to your creditor. You are asking to be freed of your debt on the basis of some sort of legal claim. However, debt consolidation is a tool that you can use to free yourself of debt over time. It’s a process whereby all your debt is lumped into one large pile of debt that you can then work to pay off. Typically, you will be able to lower your overall interest rate on your debt by doing this. You’ll also be able to work out a plan with your consolidation company so that you can successfully repay your debt.

More information about debt consolidation

If you think debt consolidation could work for you, watch this video to hear more about how it works and how it could help you.

Some of the most common debt elimination scams

There are two very common debt elimination scams that many people fall for when dealing with debt. Here is how each of them works:

In the first case, you are required to pay a debt elimination company an upfront fee, usually in the range of $2,000-$2,500. In exchange for your payment, they supply you with a document that challenges your debt. They ask you to take this directly to your creditor. In many cases, this document looks authentic. However, upon further review, your creditor will find this document to be bogus. You lose your upfront fee and the collection calls will continue as you struggle with your debt.

In the second scam, a debt elimination company supplies you with a kit that provides you with a letter to send to your creditors asking for forgiveness of your loans. You are challenging your debt. Like the first scam, you are required to pay for the letter they send you. But this letter is also bogus and will be ignored by your creditors. You will also likely need to meet with FBI officials to speak about your actions.

15 people and places that can help you create a budget

Rather than fall for scams, learn to budget your money better in the first place and eliminate debt altogether. There are plenty of places to learn about budgeting money better. Here are 15 of them to help you get started:

Dave Ramsey: The financial whiz can show you how to stretch a dollar and pay down your debt quickly at the same time.
Suze Orman: Like Ramsey, Suze Orman is an expert on personal finance and can show you how to calculate a monthly budget that works for you.
MSN Money: This company provides tips for budgeting money as well as ways to develop healthy spending habits.
Microsoft Office: This computer software comes with a program that will help you develop a personal monthly budget.
Sallie Mae: Planning for college or trying to pay off student loans? Sallie Mae helps develop a budget that will work for you.
Mapping Your Future: If you’re looking towards the future, this organization will help you budget and think long-term.
Freddie Mac: Owning a home can make a budget more stable. See how with Freddie Mac.
Business Owner’s Toolkit: See how to run your business and account for your personal budget at the same time.
For Dummies: The popular For Dummies book series also tackles the obstacle of creating a budget.
Money Under 30: Even if you absolutely hate to budget your money, you can learn how to do it.
Focus on the Family: This religion-based organization has faith in you creating and sticking to a budget.
AARP: Even if you’re a senior citizen, it’s never too late to learn how to budget your money.
Business Pundit: You may be keeping a budget already, but is it done right? See if you’re crunching your numbers correctly.
CNN Money: Create your budget instantly.
Money Tracker: See where you’re spending your money and how far it’s getting you.