Can You Help Me Find a Debt Consolidation Star?
I need to find a reputable debt consolidation company -- a real star company -- because I have some serious debt issues. I have a good income now, and want to take care of my debts so that I can build a good credit score and buy a house while the prices and mortgage rates are low. Can you give me a simple checklist or a key question I can use to separate the duds from the studs? My debts are mostly credit cards, but I also have medical debt my health insurance company didn't want to pay, and a payday loan. I have a decent job now. I just need a plan.
It is easy to find reputable and reliable debt consolidation companies, but it takes more than one question to find the right partner.
Before we look at the questions you need to ask to find a reputable debt consolidation company, we need to look at the two types of debt consolidation — debt settlement and credit counseling. Neither is better than the other, and what is the best choice for you may not be for your neighbor. Each of us have different financial needs and wants, so look at debt settlement and credit counseling with an open mind.
Debt settlement is a debt consolidation strategy where a distressed consumer enrolls his or her accounts with a debt settlement company. The consumer stops making payments on the enrolled accounts. Instead, the consumer makes payments into a special bank account. In time, the debt settlement company starts negotiations with the creditors to reach lump-sum settlements for the debts.
The advantages of debt settlement are a relatively short time to debt freedom. Also, the monthly payments can be lower than monthly minimum payments for enrolled credit cards, and are always lower than credit counseling. The disadvantages are several: Calls from creditors to encourage the consumer to resume payments and leave the debt settlement program; and a consumer's credit score is damaged during the program.
Finding a star debt settlement company is easier than ever with new federal rules allowing debt settlement companies to collect their fee after the first settlement.
Credit counseling is a two-step process. The first step the consumer takes is meeting with a counselor to create a household budget. Part two is the debt management plan the credit counselor creates. The debt management plan divides a consumer's monthly payment among the creditors. The downsides to a debt management plan and credit counseling are the high monthly payments and the program length. A typical debt management plan last 5 years, which is perhaps a big reason most people enrolled in credit counseling not succeeding.
The upside to credit counseling is creditors do not call enrolled consumers asking for payment. Also, credit counseling has the potential to cause less harm to a consumer’s credit score. However, this varies by consumer and if the credit counseling company is diligent in paying the accounts on time.
Get a no-cost, no obligation analysis of your debt options from a pre-screened debt consolidation company.
Finding Reliable Debt Consolidation Companies
Now that you understand how debt settlement and credit counseling work, you need to look for a star performer. Use the table below as your guide.
|10 Facts to Help You Find a Reputable Debt Consolidation Company|
|Fact to Find||The “Right” Answers to Look For||Why It’s Important|
|Up-front fees||“No” for a debt settlement company. “$50-$75” for credit counseling.||Federal rules prohibit a debt settlement company from charging fees until the first debt is settled. For credit counseling, the initial fee is set by state law.|
|Future fees||Debt settlement companies must provide a good-faith estimate. Credit counselors charge $25-$50 per month per account.||One scam is the “fee surprise.” Avoid a surprise by seeing a schedule of fees in writing.|
|BBB membership and rating||Positive score.||No BBB membership is not an automatic disqualification, but ask the company why it is not a member.|
|Years in business||Longer is better.||Companies focusing on customer service tend to have long lives. A long company history is the opposite of “fly by night.”|
|Industry association membership||For debt settlement, look for AFCC or IAPDA. For credit counselors, look for AICCCA or NFCC.||Membership is an implied statement the firm adheres to industry standards and best practices. No memberships are a red flag.|
|Funding||Debt settlement companies earn fees from consumer. Credit counselors receive funding from consumers and credit card issuers||Open, honest credit counselors discuss their funding sources, which allows consumers to decide if the counselor is working for them or the credit card issuers.|
|Educational tools||Review the online and sample budgeting forms and other educational materials.||Everyone learns differently. Work with a company that provides tools you feel help you.|
|Quick-fix promises||Grandiose results no one else can provide. No credit score harm. Credit score improvement.||The old saying, “If it seems too good to be true it probably is,” applies to debt consolidation scams. All solutions take work. All harm your credit score.|
|Personalized services||Online or other services set up for your individual needs.||One size does not fit all in debt settlement or credit counseling. A provider striving for personal service offers more value and probably has a higher client success rate.|
|High pressure sales||A person who listens to your concerns, and answers questions completely and honestly.||Run away if you feel like you are being talked into something not in your best interest. Whether it is credit counseling or debt settlement, a reputable company does not apply high pressure to potential customers.|
The biggest difference between a reliable debt consolidation company and an unreliable potential partner are the promises each make. Beware a company making claims too good to be true.
This answer will help you find a reliable and reputable debt consolidation company. But you may be asking if debt settlement or credit counseling is right for you. Or, it may be another option might be a better choice. The Bills.com Debt Coach, a no-cost service, will provide the costs and benefits of each debt consolidation option. Use it to find a star performing debt settlement plan that works the best for you.
Struggling with debt?
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2023 was $17.06 trillion. Auto loan debt was $1.582 trillion and credit card was $1.031 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Utah, 19% have any kind of debt in collections and the median debt in collections is $1943. Medical debt is common and 12% have that in collections. The median medical debt in collections is $980.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.