Here we go again with the debt crisis and how to work through the jungle filled with snake pits and quagmires. The USA today has an article that pretty much restates one of earlier posts about the debt management programs that we all see on television. We can settle your debt for pennies on the dollar. But, can they? Do they? According to USA Today in personal finance, probably not.

In debt settlement, the pros are that people can avoid Bankruptcy, the cons are that there are high fees generally paid upfront and that people are told to stop making payments which will greatly affect the credit report and the credit score. And, if you fall out the program you owe more than when you began.

In credit counseling, the pros are that the fees are typically low and some agencies and creditors agree to not harm your credit rating. In some cases the interest rates and fees are reduced or eliminated altogether. The cons are that in a debt management plan the principal amount is not lowered, but paid back in full. The service organization typically is funded by the credit card industry so they are not your best advocates.

Bankruptcy is another alternative. The pros are that you can keep your home and your car. Creditors cannot garnish your wages, turning off your utilities or foreclosing on your home. The cons are unfortunately, the credit card industry was instrumental in the passage of sweeping reform to the bankruptcy laws. These reforms made it harder to meet the “means test” for a chapter 7. In order to qualify you have to show that you can not pay anything back, forcing many into a repayment plan under chapter 13. In chapter 13 you must make the mortgage payment through the trustee and pay the trustee a $200 fee on top of it all. This creates a burden on top of a burden.

Bad debt is bad for all, especially for consumers trying to what is morally right and financially possible.

USA Today, Tuesday June 6, 2010.