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Should I Use a Credit Repair Company?

Money Girl answers listener questions and tells you the truth about using a credit repair company.

By
Laura Adams, MBA
April 9, 2014
Episode #351

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How to Manage Debt

We get into debt for lots of different reasons, like racking up student loans, having unexpected medical bills, losing a job, or being a shopaholic. You have to gauge your own debt situation and face up to your ability or inability to help yourself.

Here are 5 debt management solutions to consider:

1.    Earn more. Get a better-paying job, or a second or third source of income for a period of time, so you’ll have more money available to pay down your debt.

2.    Cut costs. Be ruthless about eliminating expenses and becoming more disciplined with your money. Make extreme sacrifices like moving into a less expensive home, selling a car, or relocating to a less expensive town or city.

3.    Settle debt. Contact creditors to negotiate discounted final settlements. This is an effective strategy that could substantially reduce your debt—but usually requires you to have cash to offer.

4.    Consolidate debt. Pay off debt with a less expensive debt. Consolidation makes sense when you can reduce your interest rate and monthly payment. However, if lower payments are achieved by simply extending the length of a loan, be sure you won’t end up paying more interest in the long run.

5.    Enroll in a Debt Management Plan (DMP). Seek out a credit counseling organization (which is different than a credit repair company) for guidance. If you qualify for a DMP, you deposit money each month that they use to pay your debts according to an agreement they work out with you and your creditors. In some cases, a creditor may reduce your debt, interest rate, or fees, if you have a DMP. See FTC Facts for Consumers for more information.

What Is Credit Couseling?

A reputable credit counseling organization can offer free information and workshops to help you create a budget, manage your money, and reduce debt. Certified counselors discuss your entire financial situation and work with you to develop an action plan. The National Foundation for Credit Counseling (NFCC) is a non-profit network that can refer to you a member organization in your area.

To sum up, there’s no magic bullet for curing an ailing credit report. If it’s riddled with errors, you can and should clean them up on your own. And if your credit is poor due to making terrible financial decisions, take ownership of your mistakes and make better decisions going forward.

Never compound financial and credit problems by paying a person or company for something you can do yourself, and risk receiving bad advice or getting scammed. 

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Erase Bad Credit image courtesy of Shutterstock

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