When it comes to paying off debt and rebuilding credit some of the options available can be confusing.

You should be very cautious of anything you see online, in an email message or by mail. Unscrupulous companies and scammers target people who are struggling with debt and poor credit. Don’t respond to any that reach out to you. Instead choose a company yourself, do some research, check references, talk to people you know and check them out with the BBB (Better Business Bureau)

Credit Repair

Credit repair companies offer to evaluate your credit report and help you increase your credit score and dispute any errors the report contains. You don’t need a company to do this, you can and should do it yourself. These companies charge a fee for their service, and many are unreputable. You can work on repairing your credit yourself. See my article on How to Establish Credit & Increase Your Credit Score

You are entitled to a free copy of your credit reports. The three major credit bureaus are Equifax, Experian and Transunion. You can request a copy of your reports by going to Annual Credit Report

Review your reports and if you find errors you can contact the three credit bureaus directly. All three have dispute centers. You can do this online, by mail or by calling them on the phone.

Equifax

To file a dispute online visit https://www.equifax.com/personal/credit-report-services/credit-dispute/#

You can also contact them by mail or phone

Equifax Information Services LLC

P.O. Box 740241

Atlanta, GA 30374. By phone 1-888-378-4329

Transunion

To file a dispute online visit https://www.transunion.com/credit-disputes/dispute-your-credit

By mail

TransUnion Consumer Solutions

P.O. Box 2000

Chester, PA 19016-2000. By phone 800-916-8800

Experian

To file a dispute online visit https://www.experian.com/disputes/main.html

By mail

Experian

P.O. Box 4500, Allen, TX 75013. By phone 866-200-6020

Debt Consolidation

Debt consolidation companies offer to combine multiple debts into one monthly payment. They often tout how simple it is to have just one combined payment and claim they can offer a low interest loan to do this. Be aware that many times these companies charge high fees for their services. The good rates they promise depend on your credit score so if your score is low, you may not receive a low interest rate. You need to figure out if the consolidation will actually save you money.

There are some advantages to debt consolidation. It is convenient to have just one monthly payment and you might be able to get out of debt sooner. You may get a lower interest rate and after making timely payments and reducing your debt your credit score should increase.

If you decide to hire a company to consolidate your debt, do your research and make sure the company you choose is legitimate and has a good reputation.

Debt Relief

Debt relief companies are for-profit agencies that charge a fee (often a significant fee) to contact and negotiate with a customer’s creditors to reduce the amounts owed, get a lower interest rate and reduce fees.

Depending on how they conduct business your credit score may be damaged by using them.

I would warn against using a debt relief company. Instead work with a credit counselor and learn how to better manage your finances and debt. Consumers can often reach out themselves to their creditors to negotiate a lower interest rate or get the debt reduced.

Credit Counseling

Most credit counseling agencies are non-profit businesses. They help educate you on how to create a budget, advise on how to manage your debt, show you how to access your credit reports and help develop a management plan to pay down your debt and rebuild your credit.

They may help you organize all your debt into a single bi-weekly or monthly payment.

Do your research before choosing a credit counselor.

You can go to the National Foundation for Credit Counseling (NFCC) They accredit institutions and offer guidance when choosing a credit counseling service. National Foundation for Credit Counseling (NFCC)

Check with the Better Business Bureau (BBB) and the Consumer Protection Services in your state to verify they are reputable.

What to watch out for

When dealing with these types of companies there are some red flags to look for

The company may pretend to be a government agency

They require upfront payment

They threaten you or make you feel pressured

They instruct you to stop making payments and cut off communication with your creditors

Make unrealistic promises such as quickly improving your credit score or making your debt disappear

May promise to erase negative marks on your credit report

I would advise against using a credit repair or debt relief company at all. If you choose to use a debt consolidation or credit counseling agency do your homework. Make sure they are reputable. Read any agreement carefully before signing.