Excessive debt can push a consumer to the brink of desperation. He may look for professional assistance if he cannot handle the situation on his own. There are many options, such as credit counseling firms and debt relief companies. Debt relief may sound especially attractive because some companies claim to be able to reduce the interest and amounts owed and to slash monthly payments. Some can help, but others may offer unrealistic expectations in order to get business.
Definition
A debt relief company is a firm that works with consumers to lower their owed balances, interest rates or payments on credit cards and other accounts. The company negotiates on the consumer's behalf and receives a fee for this service. Some are nonprofit companies, although the Federal Trade Commission (FTC) explains that nonprofit status does not guarantee legitimacy or reasonable fees. Many states have laws regulating these companies, according to the FTC. Your state attorney general's office can provide more information on the specific laws in your area.
Considerations
Debt relief companies should be willing to explain their services and fees in writing and to provide a contract spelling out what they will do for you. They should also provide any guarantees in writing. Some companies solicit clients through online ads or telemarketing and make a variety of verbal promises. They should be willing to back these up with a written contract before you give any payment information.
Misconceptions
Some debt relief companies use misleading advertisements, according to the FTC, claiming they can help consumers create a bill payment plan when they are really promoting bankruptcy. They may push this option without presenting other alternatives that might be more appropriate. The FTC warns against using such companies, as bankruptcy will hurt your credit for seven to ten years and you will have to pay attorney fees in addition to the debt relief company's fee.
Warning
Herb Weisbaum of MSNBC warns that many debt relief companies make extravagant promises they cannot keep. They claim to have the ability to lower your balances, payments and interest rates, but they do not follow through once you have paid them. Many charge several hundred dollars for help that does not materialize, then refuse to refund the money.
Alternative
Credit counseling services can be a good alternative to debt relief companies, Weisbaum explains. Credit counselors assess each individual consumer's situation to come up with a customized plan. This might include creating a budget for the consumer to follow on her own or a consolidated payment plan in which money is sent to the counseling company and then passed on to the creditors.
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