Are Credit Repair Companies A Good Idea?
People who need a credit repair company's service are already in financial trouble. There are few options available to help relieve the financial pressure caused by too much debt. With limited options, the rosy picture presented by credit repair companies seems like not only a good idea, but a smart choice.
They promise a lot, such as:
- Removing bad debt from your credit report
- Stopping harassing phone calls from debt collectors
- Make repaying your debt easy and affordable
- Improve your credit and credit score
- Sadly, not all credit repair companies deliver on those promises. On paper, it all sounds like a really good and responsible way to remove the burden of debt while rebuilding credit.
- Some just add to the problems that their clients face.
Debt is a Disease! Like any disease, there are symptoms such as:
- Fear of answering the phone
- Fear of waking up to find your vehicle repossessed
- Increased stress and worry
- Fear of collecting the mail
- Marriage troubles
When you retain a debt settlement company, it takes years, unlike Chapter 7 bankruptcy. Debt consolidation programs work by taking a percentage of what you pay them and then making a deal with your creditors. Sometimes the percentage of what a credit repair company takes is significant. The longer it takes you to pay off your debts the more money they make. They are in no hurry for you to be debt free. To speak nicely, they are scams.
These hucksters almost all advertise 800 numbers on TV. They charge huge cash fees up front. Since you don't have much cash, all this does is put you further behind in your debt and lowers your already shattered credit score. In almost all cases, a lesser amount paid to a bankruptcy attorney will wipe out your debt instantly or over time.
Here is the real scorecard on debt relief companies:
1. Phone calls will increase on debts they do not settle because these creditors are waiting longer for their money. In addition, there is no legal mechanism to stop calls from any creditor, unlike bankruptcy procedure, which stops all calls upon filing.
2. Marital stress will be prolonged because the 800 number company is another bill that has to be paid.
3. You can't buy that house. By contrast, if you are not in foreclosure when you file bankruptcy, two years after a bankruptcy discharge or one year after a successfully funded Chapter 13 filing, Fannie Mae will buy your mortgage. With that government guarantee, anyone will write you a mortgage. Add one year if you were in foreclosure when you filed.
4. You will still be driving that jalopy and paying 24% interest. In many bankruptcies, there are options where your payments can be drastically reduced or a new car may be obtained.
5. Your cash flow will be reduced since you now have another dependent, the 800 number company.