Debt management companies may seem like a viable option for reducing your debt and avoiding bankruptcy, but is this really your best option? Many Americans will be scammed by claims of erasing credit card debt and becoming debt free. However, there are some debt relief agencies that are perfectly legitimate. Before deciding if this is the option for you, there are a few things that you must consider.
Debt relief companies work with your creditors to cut interest rates and agree on a more affordable payment option. You then send a monthly check for all of the bills you have signed up for in the program and they cut the checks to the individual creditors. In this monthly bill, you will pay a fee for their services.
You are then paying this company to do something that you can have done for yourself. Generally, if you are behind on payments, credit card companies are willing to work with you. Many times if you call and explain that you are having difficulty paying, they will arrange alternate payments. In this economy, it is better to receive partial payments than no payments. Furthermore, there are a growing number of lenders who will not work with debt relief agencies. By law, they are not required to do so.
With most debt management organizations you are required to sign a contract. Although contracts vary by the individual company, there are a few things almost all require. During the period in which you are using their services, you agree not to take out any additional credit. While this would make sense, certain situations may arise that you may have to. After all, it may take anywhere from three to five years to fulfill this obligation. This would then put you in breech of your contract.
There is also the myth that debt relief services will not hurt your credit. This is not entirely true, be sure to check the terms of your credit card agreement. Some may settle for less, but can still report you to the three major credit bureaus for the simple fact that you are breaking your contract with them.
Debt relief can be very useful for some individuals, depending on their situation. Beware of those who make claims that seem to good to be true, they probably are. It’s also a good idea to check the better business bureau before agreeing to any contract or paying any money to the company. Legitimate debt relief agencies typically will not ask you for money up front.…