Ever since launching this Bankruptcy in Indiana blog series, I’ve kept coming back to the topic of debt consolidation, debt settlement, credit counseling, and debt repair, all forms of help being offered to debtors as alternatives to filing bankruptcy.  Under the new legislation adopted at the end of 2008, consumers will begin to see some relief from abusive credit card company practices.  But many, many people are in need of solutions now.  Unfortunately what I’ve found is that many of them are grasping at any advertised form of debt help, getting themselves into even deeper financial trouble, as I pointed out in Be Careful With Credit Repair.

Three weeks ago, in the “Personal Finance” section of the Indianapolis Star, three Indianapolis financial planners offered answers to the question “Can debt relief services really help me climb out of a financial hole?”.  Liz Hoover of Hoover Financial Advisors differentiates between debt writeoff negotiation services, which “have a significant negative impact on your credit score”, and DMPs (debt management programs), which consolidate all or part of your debt into one payment, explaining that “your credit score will not be reduced as long as you’re still paying the debt off on time.” (For those who would like more information on the difference between the two types of services, I found an e-zine article on the subject.)

Hoover mentions the same non-profit DMP I cited in my blog, Momentive Consumer Credit Counseling Services, which has been serving central Indiana for many years. Two other financial planners, Julie Erhart-Graves and Elain Bedel, cautioned consumers to contact their own creditors to ask for interest rate reductions and alternative payment arrangements.  Only if you are unable to resolve your own debt issues, the two advisers agreed, should you turn to debt relief services for help.

From my viewpoint as a Board Certified Consumer Bankruptcy Specialist, I never claim that bankruptcy is the one and only solution for all debt situations.  However, I do urge debtors to obtain legal advice at the first sign of financial distress in order to explore all options.