Companies or organizations offering debt consolidation services do not lend debtors money to pay off their bills. They may, however, offer to total all the money you owe and try to make arrangements with your creditors to pay them what they are owed in manageable monthly installments. They may also offer counseling on good credit and budgeting practices.
A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years, and bankruptcy information up to ten years. In fact, creditors may report an account in financial counseling as payments missed, or that there are write-offs. But, a demonstrated pattern of timely payments should help you qualify for credit in the future. A variety of providers offer credit counseling services. Costs and services vary widely among them. The costs of the services may range from nothing, or very little to several hundred dollars in up-front fees plus a monthly membership or service charge based on a percentage of your total debt. Also, should your debt be reduced by negotiated agreement, the amount saved may count as taxable income by the IRS.
If you want to work with a credit counseling agency, interview several. Check them out with your BBB, state Attorney General, and local consumer protection agency. Any reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.
When responding to a credit repair offer, the BBB suggests you beware of companies that:
* do not tell you your legal rights and what you can do -- legally -- for free;
* recommend that you not contact a credit bureau directly;
* want you to pay for credit repair services before any services are provided; or
* advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity by obtaining a federal employer identification number to use instead of a social security number. If you follow illegal advice and commit fraud, you may be subject to prosecution.
For more information, see tips from the BBB's "Get More Money Now" publication online at http://www.bbbmoneynow.org/?lid=1&page=creditcounseling .
For information on the Fair Credit Reporting Act, please visit the following Federal Trade Commission url:
Helpful phone numbers include:
FTC (Main Consumer Line) 877-382-4357
FTC (FREE yearly credit report) 877-322-8228