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How Can You Tell If Debt Consolidation Programs Are Reputable?
If you've made the decision to seek help repaying your debt, you might be confused by the many options out there. Before you make a commitment to any company, it's important to know how debt repayment plans work and how to choose a reputable company.
Different from simple counseling, a Debt Repayment Plan or Debt Consolidation Plan requires you to deposit money each month with the credit counseling agency. Your deposits are used to pay your creditors according to a set payment schedule. A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Some credit counseling agencies charge little or nothing for managing the plan; others charge a monthly fee that can add up over time.
With a debt repayment plan, your credit status may be affected by the plan itself. Creditors may report that an account is in a debt repayment plan, that some payments (if any) have been missed, or that there are write-offs or other concessions that have been made to help reduce your debt to a workable amount. Under the Fair Credit Reporting Act, this accurate information about your accounts can stay on your credit report for up to seven years. However, if you can avoid filing bankruptcy, a debt repayment plan may be worth the trouble. Remember, write-offs and late payment notations may stay on your credit report for seven years-a bankruptcy can stay on for up to ten and is a matter of public record as well.
To find the credit counseling agency that's right for you, it's important to make sure that the agency you choose for such an important job is legitimate. Not sure where to start? Here are some questions to ask so you have a clear idea of what to expect:
- How much do I have to owe to use your services?
- How do you determine the amount of my payment? What happens if this is more than I can afford?
- How does your debt repayment plan work? How will I know my creditors have received payments? Is client money put in a separate account from operating funds?
- How often can I get status reports on my accounts? Can I get access to my accounts online or by phone?
- Can you get my creditors to lower or eliminate interest and finance charges or waive late fees?
- Is a debt repayment plan my only option?
- What if I can't maintain the agreed-upon plan?
- What debts will be excluded from the debt repayment plan?
- Will you help me plan for payment of these debts?
- Who will help me if I have problems with my accounts or creditors?
- How secure is the information I provide to you?
Once you've narrowed down some options for managing your finances, be sure to also check the Better Business Bureau's website for consumer feedback on the company. But before deciding on who you choose to turn to for their services, be aware of some things that should raise a red flag for you:
- A company charges an upfront fee of more than $50 before it has produced results. The Credit Repair Organizations Act makes it illegal for companies to charge a fee until their services have been performed.
- A company offers to create a new identity using an EIN (employee identification number) or create a new credit file for you. That's illegal.
- A counselor offers to improve your credit rating or remove information from your credit report. Only the original credit grantor can change information.
For help finding a reputable debt management company near you, you may go to the National Foundation for Consumer Credit.
Before you make a decision on how to handle your debt, find out how much you owe. Get all 3 credit files in one, easy-to-read report and receive a credit score FREE!
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