As Americans become increasingly more in debt, more and more debt reduction companies have sought out consumers to offer debt relief. Debt reduction works by consolidating all non-secured debts, such as credit cards and medical and tuition bills into one monthly payment, usually substantially lower than the combined payments a debtor is currently making.
The way that debt reduction works, is that the consumer pays the agreed upon monthly amount to the consolidation company and gives them authorization to make payments to the individual creditors on their behalf. The company negotiates lower interest rates, or sometimes, zero interest. Creditors are sometimes willing to make such arrangements, because they are more likely to receive payments on time from a debt relief organization than an over-burdened consumer.
Debt relief organizations form relationships with thousands of creditors. Due to these relationships, creditors are sometimes willing to forgive some of the debt.
The Consumer Federation of America polices such organizations and recommends consumers avoid those that make grand promises to eliminate debt by 50 to 75% or more. Consumers in need of debt relief are counseled to seek the advice from non-profit groups affiliated with government consumer agencies. These groups carefully evaluate the current budget of the consumer, and counsel the individuals in better money management while helping them reduce current debts and avoid further debt.
Some ways to determine if you may need a debt reduction program are if you are unable to make the minimum payments. Even if you can make all of your minimum payments, but the balances still remain the same, you should look for ways to reduce your debt. By taking all of you credit card balances back to zero from time to time, you can check up on yourself to know that you are living within your means.