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Should you use a debt relief firm if you can't repay a loan?

[Aug 23, 2011.]

 

Uh oh. You took out a personal loan a while back and now can't make the payments because of a job layoff, drop in income, medical bills or some other emergency. Should you go to a debt relief agency for help?


Negotiating debt from loans and other bills


Debt relief companies offer to help negotiate debt from loans, credit cards and other bills. But while a lot of big promises are often made by these companies, the truth is that you could actually end up in worse financial shape by signing up with the wrong outfit. Protect yourself and your credit by being extra cautious about who you hire to help with your debt problems.


The Federal Trade Commission recommends that consumers be skeptical of debt relief firms that exhibit the following characteristics.:



  • They promise that unsecured personal loans, credit cards and other debt can be settled for pennies on the dollar. Some borrowers have had success getting debts reduced significantly, but there is no guarantee this will happen. At any rate, you're better off contacting your loan servicer directly to negotiate a new payment plan.

  • They require hefty fees to help with your debt. Some companies will try to get you to pay fees before even providing service or will take a cut of the money you save if you successfully negotiate debt.

  • They tell you to stop making payments on your loans and avoid talking with creditors. Not making payments will only negatively impact your credit.

  • They assure you that you won't be sued for not making payments on loans and credit cards. Creditors can and do sue people who don't pay their debts. And if you lose the lawsuit, you could be looking at having your wages garnished or a lien put on your home to repay the debt.

  • They tell you they have negative information removed from your credit report. Debt relief firms have no control over the information contained in your credit file.

Contact loan companies yourself


There are reputable companies out there who can help with debt problems, but in most cases you are likely to get better results by communicating directly with your creditors. Call your creditors to discuss any difficulty you are having with money that is affecting your ability to repay a personal loan, credit card or other types of debt. It is better to deal with the situation now before it gets too out of hand and severely damages your credit.


 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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