Promises of reduced debt, low-interest loans and magical fixes to your credit score that are arriving in the mailbox or email are tempting, but be aware of the difference and know which the best solution is to get out of debt.
What is the difference between credit counseling, debt relief, debt consolidation and credit repair?
Credit counseling is the most comprehensive solution, focusing on a variety of resources to help solve financial issues. It also requires the most work and doesn’t promise immediate relief. Tools include budgeting, educational programs, access to counselors and a personalized plan. Credit counseling may (but doesn’t always) lead to a Debt Management Plan (DMP) where funds are deposited into an account and the agency pays debts from that account.
Debt relief or settlement companies provide help by renegotiating the debt so that 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 to avoid the fees that a company like this will charge.
Debt consolidation companies offer loans to pay off debts all at once. People will often get drawn in by promises of a low-interest loan, but once they’ve gone through the application process, they’ll find there are higher fees. Depending on the situation, some people may also be able to consolidate and pay off debt through a second mortgage or home equity line of credit but be very careful as this requires the home to be used as collateral.
Credit repair companies promise to clean up credit reports for a fee, but the chances that they can do anything account owners couldn’t do on their own are slim. You have the right to correct inaccurate information in your file, but nobody can remove accurate negative information. Only time and conscientious payments will repair the credit report.
When worried about debt, people are often vulnerable to promises of fast solutions. Here are some red flags to help avoid companies with questionable practices.
- Fees are charged before your debts are settled
- Additional pressure to pay fees masquerading as “contributions”
- The company tries to look like a government program
- “Guarantees” to make the debt go away or improve a credit score quickly
- You are told to stop paying debts and communicating with creditors
- You can’t get additional information without providing personal financial information
- Promises about what they can do without actually reviewing the financial situation
- The company offers a Debt Management Plan without teaching budgeting and money management
- Promises that the company can erase bad credit or remove information from your credit reports
Before signing up for any program, research the business offering the financial service. Check for a business review and read the complaints on the company at BBB.org. Go to the state’s attorney general and the Federal Trade Commission(www.ftc.gov) for additional information.
TIFFANY NICHOLS is a marketing and community relations specialist with the Better Business Bureau serving the Canton region and greater West Virginia.
