Promises of reduced debt, low-interest loans, and magical fixes to your credit score arriving in the mailbox or email inbox are tempting, but know the difference and know what the best solution is to get out of debt to come out
What is the difference between credit counseling, debt relief, debt consolidation and credit repair?
credit advice is the most comprehensive solution that focuses on a variety of resources to solve financial problems. It also requires the most work and doesn’t promise instant relief. Tools include budgeting, educational programs, access to advisors, and a personalized plan. Credit counseling may (but not always) result in a Debt Management Plan (DMP), where funds are deposited into an account and the agency pays debts from that account.
That US Department of Justice has a list of agencies for people looking for debt reduction help.
debt relief or comparison companies offer help by renegotiating the debt so the person doesn’t owe as much. These companies reach out to creditors and work with them to lower the balance, interest rates, or fees. Consumers can also do this themselves to avoid the fees such a company will charge.
debt consolidation Companies offer loans to pay off all debts at once. People are often attracted by the promise of a low-interest loan, but once they go through the application process, they will find that there are higher fees. Depending on the situation, some people may also consolidate and pay off debt through a second mortgage or home equity line of credit; but be very careful as this will require the house to be used as collateral.
credit repair company promise to clean up credit reports for a fee, but chances are they can do something account holders couldn’t do themselves. You have the right to correct inaccurate information on your record, but no one can remove accurate negative information. Only time and diligent payments will actually fix the credit report.
When worried about debt, people are often prone to promise quick fixes. Here are some red flags to help avoid companies with questionable practices.
- Fees are charged before your debt is settled
- Added pressure to pay fees disguised as “contributions”.
- The company is trying to look like a government program
- “Guarantees” to reduce debt or improve a credit rating quickly
- You are being told to stop paying debts and communicating with creditors
- You cannot receive additional information without providing personal financial information
- Promises about what they can do without actually checking the financial situation
- The company offers a debt management plan without teaching budgeting and money management
- Promises the company can delete bad credit or remove information from your credit reports
Before you enroll in a program, find out about the company offering the financial service. Look for an annual report and read the complaints about the company below BBB.org.
In the US, you have rights and are protected by the Credit Repair Organization Act (CROA), enforced by the FTC. Legitimate companies that comply with the law must provide:
- A written contract setting out your rights and the services to be provided
- A three-day cancellation policy with no fees
- Details on how long it will take to get results
- A statement of all costs and fees
- Any guarantees they make through their marketing
For more informations:
Kelvin Collins is President and CEO of the Better Business Bureau, which oversees the Fall Line Corridor and serves 77 counties in East Alabama, West Georgia, Southwest Georgia, Central Georgia, East Georgia and Western South Carolina. This tips column is provided by local BBBs and the International Association of Better Business Bureaus (IABBB). The Better Business Bureau sets standards for ethical business conduct, monitors compliance, and helps consumers identify trustworthy companies. Questions or complaints about a specific business or charity should be directed to the BBB, Phone: 1-800-763-4222, Website: BBB.org or email: firstname.lastname@example.org.