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Company Consolidation Debt - How To Avoid Unscrupulous Debt Consolidation Companies

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For millions of Americans overwhelmed by debt, struggling for a financial foothold amidst the economic downturn, debt consolidation companies that promise they can improve anybody’s credit report and eliminate debt in just a few easy steps offer a glimmer of hope. By aggregating all of your monthly loan payments into one easy payment, they tell you, not only will you benefit from the convenience of a single monthly payment but you’ll avoid escalating interest rates, end up paying less money in the long run and heal your damaged credit reports.

In fact, while there are certainly many legitimate debt consolidation agencies out there, an equal number are making claims that are too good to be true.

Most people who are seeking relief through debt consolidation companies have bad credit histories. A consolidation loan is just like any other loan: the greater the credit risk presented by the presumptive borrower, the higher the interest rate he or she will be charged by the company making the consolidation loan. It is not uncommon for such loans to carry interest rates well over 20%. The upshot? While the individual seeking debt relief may be carrying a lower monthly payment, over time he or she may end up paying a whole lot more.

Additionally, many debt consolidation companies offer supplementary services like budget planning, credit counseling and credit repair for which consumers end up paying a hefty fee that can be as high as 10% of their monthly payment. This fee is often tacked on to the monthly payment without the consumer’s knowledge. The result? It ends up taking these consumers much longer to repay their creditors than they had initially calculated it would. The ironic part is that it’s perfectly legal for consumers to approach their creditors and renegotiate lower payments on their own.

Some unscrupulous debt consolidation companies will even produce artificially inflated credit scores for their clients by disputing every charge on a credit report, even the ones they know are legitimate. When a charge is disputed, the credit bureau that administers the credit report is legally required to remove it from the credit report while the investigation is active. Naturally this improves a client’s credit rating – temporarily; when the disputes are resolved, however, clients’ credit scores go right back down again.

So how can you make sure the debt consolidation companies you’re dealing with are legitimate? The Federal Trade Commission offers the following advice:

• Never work with a company that charges an upfront fee before providing services or tries to pressure you into a plan before you are comfortable with it. The 1996 Credit Repair Act specifically states that services can only be billed for after they’ve been completed. Companies may try to bill you beforehand for fraudulent credit repair services, promising to make sure that all the negative information in your credit report is deleted. In point of fact, if the negative information is legitimate, there is no legal way that it can be deleted.

• Beware of any company that does not disclose your rights and tell you what you can accomplish on your own. Anything a credit repair company can do, you can do too – and that includes negotiating with creditors to reduce your debt principal and interest rates and disputing inaccurate information in your credit history.

• Beware of any company that cautions you against directly contacting the three major credit bureaus, TransUnion, Experian, and Equifax and then charges you for their credit reports. In point of fact, you are entitled to one free credit report from each of these credit bureaus on a yearly basis , although they do not have to provide you with your credit scores.

• Especially avoid any debt consolidation company that tries to persuade you to invent a new credit identity by applying to the Internal Revenue Service for an Employer Identification Number you don’t need. It’s a federal crime to acquire an Employee Identification Number under false pretenses, and you could end up facing a hefty fine or prison sentence or both. And if you use the mail, phone or Internet to obtain the fraudulent Identification Card, you could also end up facing charges and prosecution for mail or wire fraud.

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over 4 years ago

Indeed, there are scores of unscrupulous loan consolidation companies out there. But there are also legitimate and well-intentioned loan consolidation companies. 7 months ago, I was lucky I signed up with a great loan consolidation company, Be Free Financial. The financial consultant I spoke with was very accommodating and helped me understand what I was going into. She gave me a repayment plan that decreased my monthly installment. after 4 months I am off the dreadful cycle and back on track.
If you are in a situation as I have been, try Be Free Financial. Visit their web at http://www.payday-loan-consolidation.org/ or call them at 209-217-0373