Beware of debt relief companies

In the modern marketplace it seems that everywhere you look there is one group or another offering no-risk routes to debt reduction. Self-labeled debt relief companies abound, offering multiple strategies “guaranteed” to reduce payments to creditors and to lower your overall debt. While some advocate consolidating your debt as the ideal method of addressing financial troubles, others encourage you to employ their services and pursue debt settlement. Others still may promise that their services will help you lower your interest rates and make it easier to pacify your creditors. Don’t be fooled; while forms of debt relief promoted by these companies may vary by name but in substance they all share one thing: unreliability.

Ads for debt relief companies are filled with false promises, but one of the most common is surely the guarantee that the services of the organization in question will help you lower your monthly payments. Debt settlement is one form of relief which is commonly promoted through assurances such as this, but the supposed benefits of settlement are far more dubious than what companies would have you believe. The debt “settlement” in question is an agreement negotiated with your creditors to forgive a portion of your debt in exchange for repayment of the remainder and notification of your failure to repay properly to the three agencies which prepare credit scores (Equifax, Experian and TransUnion). Aside from the severe and possibly irreparable damage that this action could do to your credit rating, consider the falsehood of extravagant promises made by settlement companies, many of whom publish ads saying they can easily reduce your debt by 50% or more. In fact, forgiven debt at the end of the settlement is usually no more than 20% of the total amount, leaving you to pay the remainder plus a hefty sum of high fees and interest rates charged by the debt settlement agency. Also remember that while debt settlement companies are rightly notorious for false promises of lower payments, such untrustworthy are not limited to agencies which specialize in settlement.

A wiser alternative to hiring the services of a debt relief company is to seek the advice a reliable credit counselor. These individuals have specialized training in debt management and can provide you with good suggestions and strategies as to how to improve relations with creditors and administration of your finances given your situation. Multiple counseling agencies exist in localities across America, and sadly not all are trustworthy, forcing the Federal Trade Commission (FTC) to intervene and prosecute counselors who manipulate debtors. Thankfully there are ways to identify credit counselors who can be trusted. The National Foundation of Credit Counseling (NFCC) maintains a nationwide directory of certified counselors on its website. You can search the database to find counselors who work near your area of residence. You can also find advice through the NFCC and the Consumer Federation of America (CFA) about how to identify the best counselor for you within a pool of trustworthy qualified individuals.

Siddarth Nagaraj

Siddarth Nagaraj is a junior at the University of North Carolina-Chapel Hill. He is currently pursuing a double major in Global Studies and Political Science with a minor in Geography. Originally from Winston-Salem, North Carolina, he is interested in socioeconomic inequity and cultural diversity in developing nations. He is also a Section Editor for The Hill, UNC’s only nonpartisan political review, and has written multiple articles on international affairs for the quarterly publication.

Since the summer of 2010, he has volunteered as a Savings Officer for the Community Empowerment Fund (CEF) in Chapel Hill, which seeks to promote financial literacy and help fiscally strained individuals achieve self-sufficiency. Apart from writing, Siddarth enjoys reading, travel, and watching British television programs. Upon graduation, he plans to earn a graduate degree and seek employment in the field of international development.

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