Debt Relief Companies - Why You Should Be Cautious
If you are dealing with overwhelming debt, no one has to tell you how difficult and stressful it can be. And you are not alone. Consumer debt in the U.S. is at an all-time high and the result is millions of people who are looking for some way out of their financial misery.
Whether your debt problem is due to the loss of a job, illness, reckless overspending, or some other occurrence, the bottom line is always the same- too much outstanding debt and not enough income to cover your expenses. This can be a frustrating and embarrassing situation to deal with day-in and day-out. And the longer you ignore your financial predicament, the more likely it is to become even worse.Many people in this situation are eager to jump at the chance of a so-called "quick fix". Debt relief companies know this and carefully market their services with tag lines such as these:
- "Keep your home and other personal property".
- "Consolidate your bills into one manageable monthly payment without having to borrow".
- "Immediately STOP foreclosures, repossessions, wage garnishments, tax levies, and credit harassment."
- "Take advantage of Federal laws and get protection and assistance".
To anyone who is literally drowning in debt, these promises can seem like the perfect solution to an unbearable situation. But the Federal Trade Commission urges consumers to be alert to these gimmicks and carefully investigate any debt relief company making these claims.
Many times, the end result of using a debt relief company is bankruptcy. While bankruptcy is a legal option available to anyone with financial problems (provided all of the necessary criteria are met), it is usually considered as a last resort due to the long-lasting impact on your credit worthiness. A bankruptcy can stay on your credit report for up to ten years and can seriously affect your ability to get new credit, a place to live, and even a job.
Debt Relief Services - What to AvoidThere are many different types of Debt Relief companies. Whether it's a Credit Counseling service or Debt Settlement company, take the time to thoroughly investigate the specific company before signing any contract or making any verbal commitment. AVOID any debt relief organization which does one or more of the following:
- Informs you that it can stop all lawsuits or debt collection calls.
- Advises you to stop all contact with your creditors (this can have very serious consequences).
- Promises to get rid of all your unsecured debt.
- Talks about a "new government program" which bails out personal credit card debt.
- Strongly pressures you to give them "voluntary contributions" (another name for "fees").
- Refuses to send you free information about the services offered unless you provide a credit card number and other personal information.
- Guarantees that you will only have to pay pennies on the dollar to get rid of your unsecured debts.
- Charges you fees before settling any of your debts or entering you into a Debt Management Plan (DMP).
- Tries to enroll you in a Debt Management Plan before teaching you any money management and budgeting skills.
- Tries to enroll you in a DMP before going over your personal financial situation with you and thoroughly reviewing it.
Before Filing for Bankruptcy
If you are having difficulty paying your bills, consider the following options before making the decision to file for bankruptcy.
- Speak with your creditors as soon as possible. The longer you delay the inevitable, the harder it will be for you to get positive results. Many creditors may be willing to give you a modified re-payment plan if you are honest and forthcoming about your financial situation from the very beginning.
- Contact a licensed credit counseling service. These companies work with you and your creditors to arrive at a debt repayment plan that both parties can agree to. Certain nonprofit organizations offer this service at little or no charge.
- Think carefully before taking out a second mortgage or home equity line of credit. It may be tempting to borrow against the equity in your home to help consolidate your debt, but both of these loans require your home as collateral. Use extreme caution.
Having serious financial problems is no fun. The effects of never having enough money to cover your bills and juggling payments from month to month can be depressing and stressful. Before making a hasty financial decision which you might later regret, do some research and take your time. Otherwise, you may find yourself in an even worse financial position than the one you are experiencing now.