BBB Tip: Overwhelmed with Debt? Understand Your Options

  
     
Christmas, College, Vacation? Your debt is out of hand!
May 16, 2017

If you have a big pile of credit card bills, you may also have a big pile of credit repair or debt relief offers. Those promises of reduced debt, low-interest loans, and magical fixes for your credit score can be tempting, but you need to be very careful to make sure nobody is taking advantage of you.

The first thing you need to know is the difference between credit counseling, debt relief, debt consolidation and credit repair.

  • Credit counseling is the most complete solution, using various resources to help you solve your money problems. It also requires the most work from you and does not promise quick relief. Tools include budgeting, educational programs, counselors, and a personalized plan. Credit counseling may (but does not always) lead to a Debt Management Plan (DMP) where you pay money into an account and the agency pays your debts from that account. 

You can find a list of government approved credit-counseling agencies in the United States here.

In Canada, you can find a list of nonprofit credit counseling agencies here.

  • Debt relief or settlement companies say they can reach out to your creditors and try to get them to lower your balance, interest rates, or fees so you pay less. You can also try to do this yourself to avoid the fees that a company like this will charge you.

  • Debt consolidation companies offer you loans to pay off your debts in one lump sum. The low interest rates are tempting, but once you go through the application process you may find more fees. You may also be able consolidate and pay off your debt through a second mortgage or home equity line of credit, but be very careful. As you are putting your home up as collateral, if you cannot make your payments, you could lose it.

  • Credit repair companies promise to clean up your credit report for a fee, but the chances they can do anything you could not do on your own are slim. You have the right to correct inaccurate information in your file, but nobody can remove accurate negative information. Only time and steady payments will repair your credit.

Before you sign up for any program, be sure to do your homework. Check for a business review on the company at BBB.org. Do an internet search for the company’s name along with “reviews” or “complaints” to see what people are saying about them. You can also check with your state’s Attorney General, Provincial Government Consumer and Corporate Departments or local consumer protection agencies.

In the U.S., you have rights and are protected by the Credit Repair Organization Act (CROA), enforced by the FTC. Legitimate companies adhering to the Act must provide:

  • A written contract detailing your rights and the services to be performed
  • A three day cancellation period with no charges
  • Details on how long it will take for you to get results
  • An accounting of all costs and fees
  • Any guarantees that they are making through their marketing

In Canada, credit repair is under provincial jurisdiction, and the appropriate Provincial Government Department should be consulted.

When you’re worried about debt, you are particularly vulnerable to anybody who promises to help you out of your situation. Here are some BBB tips on related scams.