Working With a Credit Repair Company

We have all seen the commercials and heard the pitches of those credit repair companies who promise to change your life by getting your creditors to go away. They’ll stop the calls, they’ll talk to the bank, and your life goes on real peachy. Now, if hearing it put that way makes it seem too good to be true, well then maybe…

Now this article isn’t meant to be comprehensive towards all organizations that hold themselves out as credit repair or credit rebuilding services, as every company will do things differently, and there is no way we could do a review on every possible one. This is however a first-person account of what Rob encountered when dealing with similar companies at a past job. It is our hope, that if you are in need of assistance with debt, this blog will serve as food for thought as you explore your options.

Do Your Research

Like we say with most other things, take the time to get informed before agreeing to anything. Find out who the repair firm is and what they are about. Each company is going to do their process a little different, so make sure to read the full agreement, but here are some points you want to make sure are crystal clear:

  1. How do they do what they do (more on that below)?
  2. How do they get paid?
  3. Can you get out of the agreement?

So….will working with a credit repair company stop the harassing phone calls and (eventually) get you out of debt? *Yes and *Yes, but with two really big asterisks next to those.

The Asterisks

In my prior dealings with such firms, the client (you) provides a limited power of attorney to give the company permission to speak on your behalf and negotiate with the banks. That is why the calls stop. The repair firm becomes the direct point of contact for handling the debt. Your phone may stop ringing, but that does not mean your creditors are getting paid….more on that below.

And yes, you may eventually be out of debt, but this is where these types of companies may differ the most. Which brings us to asterisk number two. You want it to be clearly defined on just how the firm will get your debt resolved. Some of these companies will pool all of your money, which is what they mean in the commercial when they say they will lower your monthly payments, and you’ll only have one payment to make. In these instances, you will pay the repair firm directly and they will begin to save up your funds (short of their fees, see point #2 above). In time, your account will have enough to potentially settle your balance with a creditor.

This is where things get serious. In some situations, your bill may still be with the original bank, meaning there could still be interest and fees accruing while the account goes unpaid. It is possible, based on the pooling method explained above, that your credit gets worse before it gets better. As the repair firm is waiting for you to have enough money to begin making settlement offers, your accounts may be falling farther behind. And once your funds are used up to settle with the first bank that will make a deal, the whole process starts over again until there is enough money to hopefully make a deal with the next creditor.

It could take years for this process to play out depending on the balances you owed, which is why you want to know your options for ending the agreement with the repair company. If your situation changes, you want the flexibility to begin handling your debts directly again and quit paying for the repair service.

Going It Alone

If you believe your debt situation is dire enough to consider a credit repair service, first try working with your creditors on your own. It can be done, just call to see what your options are and work with the bank. Be nice, polite, and honest with them. If you’re not behind yet, but just had a life event that makes you afraid you will be soon, then tell them that. You may get lucky and have a good company that offers deferments, or at least get help with the minimum required payments or interest rates for a short time. The banks want to keep getting your payments as much as you want to keep making them, so ask for a little bit of time and work diligently to meet the parameters. There is no shame in hitting a rough patch in life, it happens to everybody. Regardless of how you do it, credit repair takes time. You may have to rebuild the trust level with financiers, and that does not happen overnight. Stay on top of your obligations, be informed, and work hard. We are rooting for you.

Keep it good,

Cheers,
@planwithmfp


“Like we say with most other things, take the time to get informed before agreeing to anything.”