Are online debt reduction agencies safe?

As in any good marriage, you’re both right: there are some services that are reputable and high quality, and unfortunately, there are other services that are not. It’s like hiring a plumber or contractor—it’s all about which one you get.

Some basic information about online debt reduction: first, there’s precious little regulation. Almost anyone can set up shop, hang out a website, and call themselves a debt reduction counselor. There are essentially three services they offer:

• Advice on how to manage debt—this can be very helpful, especially for the fiscally unsophisticated or inexperienced.
• Negotiation with creditors—to try to get creditors to reduce the amount owed, interest rate, or monthly payments—this would be online debt settlement, where the online agency settles your debt for dimes on the dollar. Note though that creditors must agree to settle a debt for less, so no one can guarantee this.
• Online debt consolidation—the debt reduction service can provide or help you obtain a loan that will be used to pay off other debts. The goal is to replace higher-interest or higher-monthly-payment debt with lower.

All three services have value. The first two can be offered by nonprofit as well as for-profit services. And unfortunately, frauds as well as legitimate services can promise all three.

To find a good online debt reduction service, you should: (1) be careful of those who overpromise—it it sounds too good to be true, it probably is; (2) avoid those who are charging excessive amounts, especially money up front—even if they reduce your other debt, they may put you in a worse place by their own charges; (3) avoid any who want you to provide too much information—for example, there is no legitimate need for your social security number when seeking a quote or description of services.

Also consider consulting with a lawyer with experience in debt reduction as an alternative. An attorney can help you understand all your legal rights, obligations, and options, including bankruptcy; and an attorney is bound by legal ethics and the rules of practice to look out for your interests.