Where to turn when debt gets too deep[SIZE=-1]These days you or someone you know may be looking for help from a debt-management company. There are two basic varieties. Credit counselors help people develop a strategy for paying back their debt. Many work with creditors to lower interest rates and set up repayment programs, often for little or no cost. Debt-settlement firms, on the other hand, negotiate with creditors to settle the debt for a portion of the amount owed.
The Consumer Reports Money Adviser newsletter offers these tips:
- Try to work it out yourself. Figure out how much you can cut your expenses to pay down your debts. Then contact your creditors directly, explain your situation, and try to work out a modified payment plan you can afford.
- Be wary of debt-settlement services.*Using them can damage your credit score. And some make exaggerated claims about how much they can reduce your debt and often charge substantial setup and ongoing fees, says the Federal Trade Commission.
- Search for reliable nonprofit credit-counseling companies.*Stick with members of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Investigate services with your local consumer protection agencies before you do business with them.
- Don?t assume that nonprofit equals good. Just because an organization is nonprofit doesn?t mean its services are free, affordable, or even legitimate.*
- Look for red flags. Avoid services that charge high upfront fees, promise to erase your debts from your credit report, or won?t send information unless you give a credit-card number or other personal financial information. Beware of groups that try to sign you up or get you to agree to a plan without reviewing your finances. Go elsewhere if a service doesn?t provide budgeting and money- and debt-management advice.
- Scrutinize the contract. Get written details about the services that will be provided and the costs. Look for hidden fees.*
- Verify plans. Before participating in a plan, make sure your creditors have accepted you into the program. Then make sure your payments are being forwarded to your creditors on time.
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