Debt Repair

Ideally, dept repair through an outside agency will lower payments, reduce overall debt and help you pay down debt faster. However, program types, individual agency practices and your spending habits affect the outcome of any debt repair plan. Alternatively, self-help debt repair may be an option when you prepare a budget with your financial future in mind. Check with the Better Business Bureau and your state attorney general's office regarding a company's business practices and history prior to signing a contract.

Types

Three commonly used debt repair plans include consolidation, negotiation and credit counseling. Consolidation involves taking out a separate lower-interest loan to pay off high-interest debt. With debt negotiation, an agency bargains with your creditors in an attempt to reduce debt, eliminate late fees and possibly reduce monthly payments. Credit counseling includes consumer budgeting advice and planning.

Advantages

The advantages of using a debt repair agency may include credit counseling to help you avoid future financial problems, lower payments, reduced interest rates and less overall debt. Debt repair companies also have experience negotiating with creditors. A debt repair plan that provides all these benefits can help you get out of debt faster.

Disadvantages

Aside from some credit counseling programs that charge fees based on your ability to pay, debt repair agencies expect payment for their services. While some plans negotiate lower creditor payments, the overall cost may be more than you currently owe. Additionally, some companies may advise you to stop making payments to lenders in hopes that the lender will be more apt to negotiate. Delinquent payments will negatively influence your credit score.

Concerns

Barring bankruptcy or invalid debt, there is no instant fix for outstanding debt regardless of a company's claims. Debt repair agencies claiming to eliminate your debt may in fact instruct you to file for bankruptcy after you pay them for debt repair. Additionally, your creditors are not obligated to make deals with these agencies, leaving you with the original debt plus money owed to a debt repair agency. Be wary of companies claiming instant credit repair, guaranteeing debt elimination or asking for money upfront.

Considerations

Any legal action a debt repair agency can make, you can do for yourself. Most lenders are willing to negotiate if you show good faith and do not ignore the debt. Additionally, the Fair Debt Collection Practices Act protects you from harassment or deceitful debt-collector claims. With credit repair, the only way to remove legitimate negative information is to wait for the credit reporting statute of limitations to expire --- seven years for most debt --- or deal directly with creditors asking them to remove or change the information. Fix inaccurate information by writing to the credit-reporting agency and requesting that the information be removed.

References

• Better Business Bureau: BBB on Differences Between Debt Consolidation, Debt Negotiation and Debt Elimination Plans
• Federal Trade Commission: Facts for Consumers: Knee Deep in Debt
• Washington State Office of the Attorney General: McKenna Warns Consumers About Debt-Relief Scams
• Federal Trade Commission: Credit Repair: How to Help Yourself