So, you’ve found yourself in a whole lot of debt. Perhaps you don’t know how you got in this mess – charging things here or there, putting fires out on your plastic, getting a degree with a much larger price tag than anticipated – or maybe you are laser clear on the reason why you find yourself stuck in some debt muck.
Dealing with a debt relief company might seem like a great idea to you, especially if you are overwhelmed with debt and underwhelmed by your paycheck. But there are lots of considerations when looking for a reputable company. The fact is, many of them are not reputable, and some of them are downright scams that could leave your situation worse than it already is.
What Can a Debt Relief Company Do for You?
Debt relief companies offer a few different kinds of services to help with your debt load. The services can include:
- Repayment Plan Creation: helping you create realistic repayment plans (something you may be able to DIY with the help of ReadyforZero)
- Consolidation of Your Loans: Debt consolidation is when you get a new loan with new terms that will pay off the loans you’ve decided to consolidate.
- Debt Management Plan Creation: A Debt Management Plan (DMP) is the negotiation of new payment terms with your creditors (such as lower interest rates, and lower monthly payments).
- Debt Settlement Negotiations: Negotiate with your creditors to pay a certain amount of the balance of each loan and in return they will cancel the rest of the debt (note: there will likely be tax consequences on the forgiven amount).
From the options above, you need to first figure out if any sound appealing to you (note that you need to do the research to find out the pros and cons of each type of debt relief), and then you need to figure out which ones you want that you don’t want to tackle on your own. That’s when a reputable debt relief company may come in handy.
How to Filter Out the Good from the Bad
You might think you have made a good choice if you choose a company that is non-profit. Sounds legitimate, right? Unfortunately, just because a debt relief company is a non-profit does not mean they are reputable. Instead, a good place to start your search is at the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
Even if you find a company through one of these organizations, you need to put it through the following filters:
- Your State Attorney General’s Office: You should contact your state’s Attorney General’s Office to find out if there are logged complaints against this company. If there are, find out the nature of the complaints.
- The Consumer Protection Agency: Again, you should contact this agency to find out if there are complaints, and if any, what they are.
- The BBB (Better Business Bureau): Is this company registered with the BBB?
- Ask a Few Questions: According to the BBB, a reputable debt relief company should get most of their money from creditors and not from charging you fees. You need to ask within this company how their counselors are paid (and if they are paid through commissions on debt relief solutions they sell you, do not use the company). Also, if at any point the company is not willing to provide terms in writing, run!
Terms You Should Look for
According to the FTC, there are terms that you should look for in the contract you are presented. For example, you should receive pricing, the length of time it will take to get results, an offer, and possible negative consequences of ceasing payments while working with the company before you enter into a contract. There are other key terms that the company must tell you available here.
A Few Other Warning Signs
If you found a company that made it through the filters above, but that does any of the following below, then you need to start your search over again:
- Does not look at your financial situation before trying to enroll you in a DMP or other debt relief program.
- Charges a fee upfront before doing any work.
- Advertises that there is a “new government program” to help with your debt (that sounds too good to be true).
- Guarantees that they can make your debts disappear.
- Does not take the time to explain the potentially serious consequences to take their advice (specifically to stop paying your creditors while they negotiate).
- Will not send you free information without first getting personal financial information from you.
For additional red flags, check out the FTC’s page dedicated to coping with debt.