Many American families find themselves trapped under insurmountable debt with nowhere to turn. To make matters worse, it seems as though the only way to escape this black hole is to rely on excellent credit, which is difficult to attain after financial lapses. Unfortunately, many credit counseling and debt consolidation companies prey on individuals and families who are in need of a quick fix. It's difficult to weed out the good from the bad, but you have to start by understanding the different options that are available to you. There are two ways to begin to repair your financial situation.
Credit counseling is not easy. It won't provide you with a fast and hassle-free way of relieving yourself of debt. Generally, an individual goes to a credit counselor to get advice from an expert on legally and efficiently reducing their debt. A credit counselor will not make any underhanded deals with credit card companies, or pull any strings to help you out. They are merely trained professionals who have experience in aiding people like you.
Credit counselors can provide you with advice on how to effectively negotiate with creditors, and even step in to negotiate on your behalf. They come up with a personal debt management plan (DMP) that is tailored to your individual debts. A debt management plan usually consists of negotiating a repayment plan with your lenders, and sticking to their schedule. This can include an interest reduction or other special offers that are extended by your creditors.
Debt Consolidation Companies
You can actually perform debt consolidation on your own. By doing your own research, you can learn effective methods for reducing the dollar amount and number of your payments. You can go directly to your credit companies and ask for what you need. In fact, you can also check your credit scores for inaccuracies, and file free claims with the government agencies responsible for the information. But there are a whole slew of debt consolidation companies who claim to be able to do that for you, and in a shorter period of time. These companies vary from certified credit counselors because of their somewhat dubious nature. Some even claim to be able to eliminate your debt completely, which is never the case. You may know the differences between legitimate credit counselors and shady services, but there's a more primary question that needs to be addressed: Do you need credit counseling at all?
Can You Do It On Your Own?
Essentially, credit counseling does not provide any services you couldn't theoretically do on your own. If you are willing to do your research, you can save a little bit of money by skipping the middleman.
Do You Have the Discipline?
You may know what you need to do, but you have trouble putting your knowledge to good use. A good credit counselor will give you a detailed plan and hold you accountable for re-payment. Also, you may feel obligated to stick to the plan because you're paying the additional fee for the counselor. Because you don't want to end up paying someone to consolidate your debts again, you will do it right the first time. This concept is a lot like dieting. If you are good at restricting your diet to fruits, veggies and proteins, you can lose weight on your own. But if you always find yourself in line for donuts and a latte in the morning, it's best to join a support group or class.
Do You Trust the Company You're Working With?
If you're leaning towards debt consolidation or credit counseling, make sure you are 100% sure it is an honest company. It doesn't make sense to move forward with the process if you're not completely sure that your money is in good hands. Say you're ready to take the plunge, you know you need to get your debt under control, and you need someone to hold your hand along the way. How do you know that the company you're working with will take good care of you? Here are some warning signs to look out for.
- Don't pay up front: Any company that asks you to pay their fees before services are rendered is in direction violation of the Credit Repair Organizations Act. Such companies are operating illegally, and will probably not take good care of you or your money.
- Don't get a new identity: Some shifty credit repair operations will ask you to file for a new "Employer Identification Number" in order to wipe your credit history clean. They will ask you to do so using false information. This is called "file segregation," and it is a felony.
- Don't believe them when they promise to wipe your record clean: No debt consolidation company can remove negative information from your credit report. Bankruptcies stay on your record for 10 years, and most other transgressions such as lawsuits and judgments stay on your report for 7 years. No company can actually take these off your record until the statute of limitations expires.
- Don't dispute everything: Companies may advise you to dispute every piece of negative information on your credit report. Don't waste your time. Most of these tidbits are easily verifiable and likely true. If there is a major mistake, you can spot it and file a report yourself.
- Don't let them dance around the issue: Legitimate credit and debt consolidation companies will give you a contract that includes their company name and address, guarantees they offer, payment summary, and an estimated results timeframe. They will also provide you with a three-day grace period in which to cancel their services. Any company who refuses to provide any of that information is not operating honestly.
There's no easy way to climb out of debt. It's a difficult and lengthy process, but it is 100% achievable, as long as you commit to whichever plan you choose.