CNNmoney recently featured an article highlighting key things that debt consolidation companies can’t do. One of which happens to be illegal. But, people keep falling for these ‘con’-sters because of the hole they’ve dug themselves in with debt. If you’re in the thick of it and can’t see a way out, don’t fall for these common myths about debt consolidation companies.
Myth 1: Getting out of debt is easy. The less reputable debt consolidation companies will promise you that they can fix your mess easily and quickly. And, some even claim to help you increase your credit score in the process.
Truth: Getting out of debt is a tough road. Sure, it’s a bumpy ride, but it’s worth it.
Myth 2: We can clean up your credit history. That’s right. Some of these debt consolidation companies make the audacious claim that they can ‘cleanse’ your credit report of all of the bad marks.
Truth: Not only can they not clean your credit history, it’s illegal. The only items that can be removed from your credit report are debts that are inaccurate. But, the only way you clean up your credit report, is by paying your bills on time. And this takes a little while.
Myth 3: Only a debt consolidation company can help me get out of debt. The reason you’ve seen an increase in television commercials and radio ads for debt relief, is that people believe these are ‘needed’ services.
Truth: You don’t need a debt consolidation company at all. These companies can’t do anything you can’t do on your own. In fact, some of the ways these companies ’serve’ their clients is by negotiating with creditors on your behalf. Listen, nobody knows your situation better than you. Why would you let a complete stranger handle it for you?
Alternatives to consolidation
Those seeking debt relief should understand that there are other – often wiser – options out there. “It’s generally not a good idea to replace one debt with another,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. “Debt consolidation gives the illusion that you’ve done something positive, because it frees up disposable income. But that can quickly evaporate and you’re right back to where you started.” There are many non-profit credit counseling agencies that will work with you to establish a plan to get out of debt. They will even provide free counseling if it’s determined that you can’t afford to pay. “A good counselor will work closely with the person to help them understand their situation and establish a budget so they can get back in the good graces of their creditors,” said Jones. His industry trade association, the AICCCA, offers strict accreditation standards for agencies who want to join, including a $50 cap on monthly maintenance fees.
To find a counselor near you, use the AICCCA’s Find a Counseling Agency page.
(article via moneytalk)
Fredric
a few things that i do that help me keep my debt down…because let’s all face it, we all have debt of some kind, even if it’s not financial.
1.) american express gold card: you have to pay off the balance in 30 days no matter what. this helps control my spending per month.
2.) never miss a payment, even if its the minimum. nothing can destroy a credit score like one late payment.
3.) be patient, be diligent. institute good practices. even if you can’t payoff huge balances, put into practice to automatically pay a credit card through an auto-payment. diligently paying a consistent amount helps. start with minimum + $25.
4.) put money in different accounts. make one of those accounts really hard to get into. i have a bad habit of ‘balance-checking’. i constantly log in, check my balances, and think about what i could do with the money. setup a savings account that has a really complicated user/pass, write it down, put in your sock drawer, and setup auto deposits. without being able to check on it, the savings builds up b/c you forget about it.
June 12, 2007 at 9:09 am
ETS
One of my tricks is you can’t have a huge balance if you don’t have a high limit. You can decrease your limit.
But Fred, keep checking those online accounts. I do it all day everyday. I was a victim of identity theft, so I’m anal.
June 12, 2007 at 5:36 pm
Fredric
i feel you on that.
i just signed up for bank of america’s credit monitoring service. $40.
sends me a quarterly update. emails me if anything drastic changes on credit report.
no fuss. no muss.
June 12, 2007 at 6:10 pm
Debt Relief
Good article and all of the above points are true, particularly the first two. Although point number 3 is true, the same is also true of a lot of things—like representing yourself in court, filing taxes and much else. Negotiating with creditors is a stressful affair and despite popular conception, there is an art to it. Each creditor has its internal policy toward debt negotiations and a good debt relief company can apply their expertise with individual creditors to save you more money than you would otherwise be able to. I’m with you that debt relief should only be sought out when one is truly overextended, but a blanket rule to “avoid all debt consolidation companies” is too black and white.
The keys: 1) Only seek debt relief when you have exhausted all of your other options (including contacting the creditor yourself) and 2) Do homework on any company you eventually choose (check out their BBB record, Google their name online and see what people are saying about them, etc).
June 13, 2007 at 1:28 pm
Brian
You’re right. A lot of these debt consolidation companies promise more than they can deliver. You’ll just end up extending your payments and paying more interest on your debts. So many people get caught in this trap. Plus, your credit cannot be repaired in one swoop.
One way to pay your debts quickly – and restore your credit – is to reduce debt balance. The less you have to pay, the quicker you can settle your debts. You can cut your debt balance in half. For an alternative, go to http://www.creditsolutions. com.
June 27, 2007 at 12:48 pm
Debt Reduction
This post is very informative. There is so much information available on the Internet these days, it is helpful to have some clarification.
September 25, 2008 at 9:24 am
Debt Reduction
Yes one can do debt consolidation on their own however Debt Reduction is much more trickier. Debt Consolidation is basically getting someone else to manage paying your debtors. You can do by setting up auto pay at your bank.
October 5, 2008 at 7:47 am
John
Getting out of debt requires patience and a committment between spouses, if married. You have to set spending goals. http://www.lowcostaffordableinsurance.com
October 16, 2008 at 9:10 pm
low cost insurance
Your first two points are very accurate. It takes alot of effort to pay off debt.
October 16, 2008 at 9:11 pm
low cost auto insurance
Whoever said getting out of debt is easy was never in debt. It takes a huge amount of discipline. But if someone had no discipline when it came to accumulating debt they likely have little to pay it off quickly. Forming a budget and sticking to it is crucial.
November 6, 2008 at 4:01 pm
low cost auto insurance
I like the idea of having a debt assistance type company to help. Where do you find those?
November 6, 2008 at 4:04 pm
low cost insurance
Yes, the effort is immense. The older you get the more discipline people usually develop. It's the young generation that usually gets in trouble, for the most part.
November 6, 2008 at 4:05 pm
Debt Consolidation
Yes I think that you are right with that last paragraph on alternatives to consolidation , but that depends on the person and their lifestyle, i dont think there is one single answer for everybody out there.
November 20, 2008 at 1:35 am
debt11
The Christian debt counseling provides full and comprehensive information to their client, along this they bring you Debt consolidation reference program. They focus especial for the financial growth of every individual.
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February 7, 2009 at 4:12 am