Should You Use a Credit Repair Company?

Many of us will get into credit card debt at some point in our lives. Some will amass huge debts where the interest payments each month can be higher than what they make in salary. They no longer can tread water when this happens. When people get desperate they may be tempted to turn to credit repair companies.

Debt Ball and Chain

If you get phone calls or emails from credit repair companies, keep in mind they are not authorized to remove any adverse rating or item from your credit report. If you find a company who claims they can wipe out your bad credit, you should view this as a potential scam.​

Another potential time bomb to be aware of is credit forgiveness. Credit repair companies will work with your creditors to get a part of your debt forgiven. They will do this for a percentage of the forgiven amount. That’s great, except you can usually do this yourself by calling the creditors. Credit card companies are charging hefty rates. It won’t take much for them to knock off a few thousand dollars from the amount you owe them. It’s in their best interest because it’s better than you defaulting on the full amount owed.

Everything is negotiable and you can negotiate on your behalf rather than having a debt repair company do it for you. If you do get a deal, there are two situations to be aware of:

· Your Credit Rating May Still Take a Hit

· You May Be Liable for Taxes on the Forgiven Amount

If a credit repair company charges you before they provide any services, you should stay far away from that company. The Credit Repair Organization Act makes this practice illegal. These companies also have to be upfront about what they can do for you.

Your debt situation may lead you to declare bankruptcy. This isn’t an easy decision, but it could help you gain some breathing room for your debt management. You will need to hire a lawyer for this process and the court handling your case will likely require you to seek out a legitimate credit counselor to define a plan during your bankruptcy.

Keep in mind that bankruptcy does not remove the credit obligations. It just temporarily stops creditors from taking action to collect their debts. This period is usually for three years and you will have to repay them at least some of what you owe. The bankruptcy stays on your record for 10 years, so make sure you keep that in mind when deciding on the best plan of action.

Try to seek out alternative solutions that protect your credit rating. For instance, if you have family members that you can hit up for the money, this is a better solution then the topics discussed earlier. If your family does not have the money or is unwilling to provide it, take out a loan or a home equity. You will get a better rate than what you owe on credit cards and your payments will be fixed for the duration of that loan.

Before considering any debt management program, take some tips from the FTC. You can find more about this issue at their website.

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