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Can Debt Servicing Companies Get You Out of Debt?

written by: •edited by: Ronda Bowen•updated: 8/23/2011

In tough times many of us face debt—overwhelming debt! With lower income levels due to job loss or illness it’s often hard to repay that debt on your own. Should you seek out the help of a debt arbitrator? Find government facts and real answers here.

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    Is There Free Debt Help?

    Spiraling Debt Turn on the television, the radio or search the Internet and you’ll find all sorts of ads from companies promising to relieve you of debt. The truth is, however, most of these companies charge a lot of money causing many problems with debt arbitration. As a caveat, I must warn that even the Better Business Bureau receives many complaints each year about these debt servicing companies.

    The best way to find out if a debt consolidation company is reliable or not is to search BBB’s website or do a Google search on the name of the company with the word “scam" or “complaints" afterward. For example, search for “ABC Get-Out-Of-Debt-Now Scam" or “ABC Get-Out-Of-Debt-Now Complaints." From these searches you’ll be able to determine whether or not you should contact these companies or go it alone on your debt arbitration.

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    Real Help for Debt

    The Federal Trade Commission (FTC) offers a great guide, Knee Deep in Debt (link below), to help American consumers understand debt consolidation, arbitration and other types of ways to manage your debt.

    As stated above, the FTC also warns about debt arbitration companies. These companies basically contact your creditors and set up accounts where you make monthly payments and in turn, the debt company pays each creditor something each month.

    Sounds easy right? Some of the problems with these companies include:

    Extreme administrative fees – The FTC warns you should never pay any company upfront fees to settle your debt. They also recommend seeking out community centers, senior centers or military bases for credit counseling help that is free. Some employers also offer Employee Assistance Programs (EAP) where employees can get help on managing debt for free.

    The right to arbitrate the debt - Unfortunately, there are companies out there claiming they can help you settle a debt, have up to 70 percent of the debt relieved or even spare your vehicle loan debt if the car you purchase is a lemon. These statements should never be looked at as guarantees. For example, no debt arbitration company has the right to negotiate car lemon laws. Nor can they reduce the debt you owe.

    Paying your creditors on time – Many debt servicing companies have complaints against them for holding money in escrow accounts and not paying your creditors on time. This only causes more interest and late fees meaning you’re gaining debt and not making a dent.

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    Real (and Free) Help for Debt

    Cut Up Your Credit Cards As tough as it is, here are some tips on helping you face your debt and avoid the problems with debt arbitration companies:

    Credit Report – Obtain your free annual credit report from the FTC (link below) and review it to see if you spot any errors. If you do spot errors, see if you can get them corrected.

    Call Your Creditors – Call each creditor and discuss your debt. While they won’t forgive the debt, what they often do is reduce interest rates or change your payment date to a time where money is most accessible for payments. If you can negotiate the debt and agree to make timely payments, many creditors will stop the interest and the late fees as long as you continue to pay on time each month. Failure to communicate with creditors only makes things worse.

    Budget Debt – Use any personal budgeting program or even a handwritten spreadsheet to list all your debts and income coming in each month. See what you can afford to pay each creditor while still being able to meet other expenses such as rent, utilities and food expenses. Cut up your credit cards and follow your budget!

    Car Loans – Call your finance company on vehicle loans and see if they will allow you to refinance at a lower rate. While this won’t work for most finance companies offered at dealerships, most credit unions and banks will consider this option if you qualify.

    Free Counseling Services – Only utilize free counseling or nonprofit debt servicing companies to aid you in debt arbitration. Use the suggestions provided above on finding reputable debt arbitration companies.

    Look to the FTC – The FTC wants the American consumer to understand the rules on debt and what creditors can and cannot do. The link to the FTC article below will help you understand your rights as well as answer some general FAQs on ways to manage debt.

    Unfortunately, everyone is out to make a buck, but the biggest problem consumers face is trusting companies that may not be so honest or trustworthy. If you do decide to utilize any credit counseling service, do your research first—this can save money and if you’re trying to pay off debt, money is already in short supply.

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    References

    FTC – Knee Deep in Debt - http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm

    FTC Free Annual Credit Report - http://www.ftc.gov/bcp/edu/microsites/freereports/index.shtml

    Better Business Bureau - http://www.bbb.org

    Image Credits:

    Spiraling Debt - gabriel77/http://www.sxc.hu/photo/1066575

    Cut Expenses - Lusi/http://www.sxc.hu/photo/1176251