Smart Borrower Center
Tools to help you borrow better
If you are ducking debt collectors and using one credit card to pay off the next, you may be considering turning to a debt assistance company for help. There are hundreds of these companies on the Internet and in the business pages of the phone book. They all promise the same things: to reduce your overall debts, work with your creditors to slash the interest you are paying and help you create a personalized debt management plan that will keep you debt-free permanently.
Can they make good on what they say they can do?
The answer is yes, if you’ve gotten to the point where you owe thousands of dollars in unsecured debt -- that is, debt that is not secured by an asset, such as a house. But it still takes hard work and commitment from you to get back on track.
Here’s what to expect from a reputable debt assistance company:
Once enrolled in a debt management plan, you may pay far less interest on your debts than previously. Creditors may even be willing to waive late fees, because they work closely with reputable debt assistance companies. They are willing to negotiate terms of debt in return for the certainty of receiving monthly payments on time.
Typically, people who are in a debt management plan need three to six years to finish paying off their debts. During that time, a good debt assistance company offers free, ongoing budget counseling plus classes and educational materials about managing debt. Participants may be restricted from applying for new credit while fulfilling the plan.
However, as you repay your debts, your credit report will improve and you may be able to qualify for new credit sooner than the seven to 10 years you will wait if you declare bankruptcy.
Not all credit assistance companies are reputable. Some take advantage of people who are desperate for help, taking monthly payments but never paying back creditors. Here are two warning signs that the debt assistance company you are dealing with is unscrupulous:
Finding a good debt assistance company
Before you sign on with a debt assistance company, check it out with your state Attorney General and local consumer protection agency and Better Business Bureau.
Make sure it’s a non-profit firm that belongs to the Association of Independent Consumer Credit Counseling Agencies, the National Foundation for Credit Counseling (NFCC) or the American Association of Debt Management Organizations. NFCC members can use the name Consumer Credit Counseling Service (CCCS) or other names, but hold the NFCC member seal.
Avoid any company that promises to repair your credit problems in a hurry. The road to financial stability typically requires ongoing counseling and can take years.
Getting started
Once you’ve found a good debt assistance company, continue to pay your bills until your creditors approve the debt management plan. Then, before you start making payments, contact your creditors to confirm that they have accepted the proposed plan. Continue contacting them and reviewing your monthly statements to make sure they get paid on time by the debt assistance company, and that you are receiving the benefits promised in your debt management plan, such as a lower interest rate.