Role of Debt Consolidation Companies

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney

You hear the commercials all the time. "We can assist you with your credit card debt" "Pay pennies on the dollar that you owe" and similar claims. The companies behind these claims are referred to as debt consolidation companies or credit counseling companies. They target individuals who are behind on credit card debts or who are struggling to pay their credit cards. While there are some good companies out there that do work with individuals to reduce their credit card debt payments, there are far more scam artists who sole goal is to get people to pay them substantial sums of money and never provide any real services. Many of these companies operate out of other countries so they are not subject to state and federal laws that are designed to protect consumers. Others have carefully drafted representation agreements that make it impossible for an individual to understand that the money they pay is not going to the creditors initially and don't even think about asking for a refund. I once saw an agreement that obligated the individual to pay in excess of $5,000 before they even contacted a creditor.

Even if you manage to find a reputable company to work with, many individuals, including a former staff member that used one of these companies, don't realize that using this service will actually lower your credit score. Since you are not paying your credit cards in full or according to the original contract, the credit card company will report that your accounts are delinquent which will lower your score every month. So instead of working to improve your credit score, you are actually lowering it. You have to wait until you finish the payment program to begin the process of rebuilding your credit and that may take years.

Most of the people that I met with have debts beside credit cards that they need to deal with. These companies will only work with credit card debt. They will not assist you with medical bills, pay day loan or even taxes. You have to handle those on your own.

By contrast, bankruptcy will assist you with virtually all of your debts. Depending on whether you file a Chapter 7 or a Chapter 13 bankruptcy, you will be able to wipe out a good majority of your credit card debt and deal with medical bills, pay day loans, car loans, mortgage arrears and tax debt, all at the same time. In addition, you can begin rebuilding your credit right after you file a bankruptcy.

If you are struggling with your bills, don't fall victim to a scam artist who is not looking out for your best interests. Contact Hampton Roads Legal Services at 757-320-2010. I will meet with you and show you had a bankruptcy can start you on the path to becoming debt free.

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