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Credit Card Debt Settlement Scams: The Danger Signs

Credit Card Debt

If your debts are overwhelming and you find yourself falling behind on monthly payments, then it may be time to get the help you need.

Because the recession has left many Americans out of work and unable to meet their monthly obligations, a wide variety of debt settlement companies have cropped up. The majority of these companies are reputable, but some are not. It’s a classic example of fraudulent individuals swooping in to take advantage of a situation; in this case it is a wide group of individuals who are struggling to pay their bills.

Debt settlement services are companies that provide a service to individuals in financial straits. The goal of a reputable debt settlement service is to negotiate deals with your creditors to repay your debt, usually for a fraction of your balance, without interest fees or other charges.

It is important to understand, however, that a debt settlement service may not be right for you, and it may be more advantageous to file bankruptcy. It is therefore essential that you speak with a lawyer regarding your choices and your rights, as each situation can be very different.

Debt settlement services may be a smart alternative for individuals that want to avoid bankruptcy, or for individuals that, under the new bankruptcy laws, may have difficulty filing for bankruptcy under Chapter 7.

Once you have talked with an attorney and have decided to pursue debt settlement, it is vital that you choose a reputable debt settlement company. Although it may be difficult to differentiate between a reputable company and a scam, the following warning signs should tip you off to a less-than-reputable company:

• The debt settlement company charges a huge, upfront fee for their services. In other words, avoid any company that demands a large, initial fee is typically not trustworthy, as federal and state regulators have busted many companies that take thousands of dollars from consumers, only to fall short on their promises of debt relief.
• The debt settlement company claims to repair your credit. It is important to understand that debt settlement, regardless of which company it is through, will significantly impact your credit score. A debt settlement on your credit report will damage your credit, so don’t let anyone tell you otherwise.

It is important to remember that a debt settlement company is NOT the same as non-profit, consumer credit agencies. Many consumers find that using a consumer credit counseling agency, or simply negotiating directly with their creditors, is often a better option than debt settlement companies.

Starting Over after your Bankruptcy: What you can do to Help Begin Repairing your Credit

Credit Repair

First things first: we all know that bankruptcy can severely damage your credit score. Luckily, however, it doesn’t have to be a life-long sentence!

You can begin rebuilding your credit rating almost immediately after you file for bankruptcy, provided you have recognized your credit mistakes in the past and have learned from them. A good place to start is consumer credit counseling classes. These classes can help you properly manage your monthly finances and budget, and can also teach you ways in which you can responsibly handle your debts and rebuild your credit rating.

Secured Credit Cards

A great first step is to apply for a secured credit card. A secured credit card essentially means that you send the credit card company a certain amount of money that they hold in a separate account. The amount you send generally matches your credit limit. For example, if you have a credit card with a $500 credit limit you would have to send the credit card company $500 to secure the card.

If you pay the bill on time, your $500 remains in your account. If, however, you fail to pay the credit card bill, the credit card company simply takes the money out of your account to settle the debt. The credit card company will then likely cancel your account, so it is well worth your time to remain responsible when dealing with a secured credit card.

It is also important to remember that a secured credit card can affect your credit rating, so always pay your balance in full every month so that you can begin rebuilding your credit rating.

Unsecured Credit Cards

Another option may be a credit card with a low credit limit. Many people can successfully get credit cards while still in bankruptcy, but it is important to remember that these cards often come with high fees and equally high interest rates. In other words, pay off your balance in full each month to avoid paying astronomical interest rates and to begin building a positive credit history.

A bankruptcy is certainly going to blemish your credit score, but you can begin working toward a brighter credit future if you act now!