So let’s say your debts are overwhelming you and you’re looking for help.
First, the ads on TV and the internet about improving your credit are not by wonderful people who want you to be debt free – they are by companies who want to make money off you. That is the only reason they spend thousands of dollars on television ads. Even the companies that are non-profit are not necessarily acting in your best interest
The way many of these companies lower your debts is they take over all your accounts and threaten your lenders by telling them if they won’t accept less money, you’ll file bankruptcy and they’ll get nothing. The credit counseling agency negotiates a lower payment, charges a fee on top of that and you pay a combined balance. However, what your original lender does is write off the loss and list it on your credit report as a Charge Off – which hurts your credit more.
Even the very fact that you are using a credit counseling company can show up on your credit and is considered a negative mark. It’s important to think carefully about the long term ramifications to your credit score as these items stay on your credit for 7 years and bankruptcies and foreclosures stay on for 10 years.
For more information on credit counseling agencies and getting the best advice for your personal situation, go to http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm.