Consumers who are weary of constantly getting “another day older and deeper in debt,” as Tennessee Ernie Ford once sang, can find themselves tempted to try desperate measures to get out of that cycle. Some of those measures can actually worsen a financial burden.
An abundance of credit repair, debt settlement, debt consolidation and even debt elimination companies are vying for your business these days. The Better Business Bureau cautions consumers to be careful in dealing with these companies.
The Federal Trade Commission warns that there is no magic wand. No one can remove accurate negative information from your credit report. Consumer reporting companies can keep accurate negative information on your credit report for seven years and bankruptcy information for 10 years.
That fact does not stop credit repair companies from making extravagant claims about raising your credit score. The truth is that for the cost of a few stamps the consumer can do the same thing that a credit repair company will charge for.
Look for these red flags when considering a credit repair company:
• The company wants money up front for its services. Under the Credit Repair Organizations Act of 1996, you cannot be required to pay until the promised services have been completed.
• The company does not tell you your rights and what you can do for yourself for free. You already have the right, for instance, to request an investigation of information in your file if you think it’s inaccurate.
• The company tells you they can get rid of negative information in your file even if it is accurate and current.
• The company advises you to apply for an Employer Identification Number to use instead of your Social Security number to invent a “new” identity. This is extremely dangerous and doing so could make you guilty of a federal crime.
Remember that you have three days to change your mind without incurring any charges after signing a contract with a credit repair company.
Debt consolidation companies offer to roll up assorted debts, allowing you to make one lower payment to the company itself. Tacked on fees and exorbitant interest rates can mean the consumer pays more in the long run. In cases where most of the money owed is to credit card debt, simply getting a debt consolidation loan from a credit union or bank at a lower interest rate could be advisable.
Debt negotiation/settlement companies say they will get your lenders to lower the total amount of debt owed for an upfront fee. Always beware of upfront fees. Some consumers find out later that the company never made the promised contact with the lender. Meanwhile, the payments that should have been made to the lender but were not have worsened the consumer’s situation. In addition, the debt negotiation company has taken your money.
Debt elimination companies have a million schemes, but they all rely on the notion that credit lines are illegal. For an upfront fee, of course, they provide the consumer with a “document” that supposedly absolves their debt. It does not, and your debt problem can thereby be worsened.
Stay in contact with lenders and try to work out a payment plan with them. Contact a nonprofit credit counseling agency, many of which are free or charge a small fee. Check out any debt management company with the Better Business Bureau for free. Remember the oft-repeated adage: if it sounds too good to be true, it is.