Help Get Out of Debt with some free advice

You may be thinking about using a debt negotiation company to help you get out of debt.  Here's some advice:

Some organizations that provide to help you with your debt worries may charge high fees and fail to follow through on the help they deal. Others may misrepresent the terms of a debt consolidation loan, failing to explain some costs or tell you that you’re signing over your residence as collateral. Companies advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you all that’s involved, or help you through what can be a long and complicated process.

Turning to a organization that offers help in solving debt worries may seem like a good solution when your debts become unwieldy. But before you do business with any company, check it out with your state Attorney General, local consumer protection bureau, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be not be legal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors will not guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your obtaining a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.

If you’re thinking about getting help to improve your financial situation, do some homework first. Find out what help a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts fully.

You should be cautious of claims from so-called credit repair clinics. Many organizations appeal to people with mediocre credit histories, promising to clear up credit reports for a fee. But you already have the right to have any inexact information in your file fixed. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these organizations from charging you for their help until the help are fully completed. Only time and a conscientious effort to repay your debts will improve your credit report.

Claims mad by some debt reduction companies

Debt negotiation firms may say they’re nonprofit. They also may advertise that they can set up for your unsecured debt — generally credit card debt — to be paid off for anyplace from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may say it can arrange for you to pay it off with a reduced amount, say $4,000.

The companies often delivery their services as an alternative to bankruptcy. They may say that using their advise will have little or no bad impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you finish their debt negotiation program. The firms usually tell you to halt making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors for you.

What actually happens

While creditors have no responsibility to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting bureau, including your failure to make monthly payments. That can result in a bad entry on your credit report. And in additional situations, creditors may have the right to sue you to retrieve the money you owe. In some cases, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your house. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Just because a debt negotiation organization describes itself as a “nonprofit” organization, there’s no guarantee that the help they make available are legitimate. There also is no guarantee that a creditor will take partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you go over your credit limit, extra fees and charges also can be added. This can cause your original debt to multiply. What’s more, most debt negotiation companies charge customers substantial fees for their help, including a fee to set up the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.

All the best to you!