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Hey guys. I’ve recently come upon your show and have been a weekly listener since. It’s very informative and easy to listen to compared to a lot of the other shows. My question is that I have quite a few things in collections (90% medical bills). My question is do any credit repair companies actually work to get rid of these or are they just a waste of money? Thanks guys and keep fighting the good fight.

Thanks for the question. For starters, here’s a great piece from ColorfulMoney.com on the Differences Between Debt Consolidation And Debt Settlement for those who are unclear on the two.

Learn The Difference Between Debt Consolidation and Debt Settlement

To answer your question: In short, yes (some) work and yes, they are (in my opinion) a waste of money. Here’s why: they are a waste of money because you can find most or all of the information you need for credit repair negotiations yourself. It will take a little work, but it can be done. In essence, what you are paying for is convenience. Depending on the company, this convenience can come at a hefty cost if you’re not careful. Typically, they’ll negotiate a settlement on your behalf which might mean writing off a portion of the debt (usually the interest) or agreeing to a fixed payment for a lesser amount. In both cases, this information will usually be reported by the creditor/debt holder and reflected on your credit report. If you choose to have this conversation yourself, your negotiating position will be strengthened if you obtain:

  1. Your Credit Report, which you can obtain for free from AnnualCreditReport.com.
  2. Your Credit Score, which you can obtain for free from (almost anywhere at this point but we personally use and recommend): Mint.com and KreditKarma.com.

With the above information, you can do the exact same thing the credit repair company is going to do: call your debt holders and request various options for settling the debt. This can be a painful conversation and time-consuming, but it is your debt so you might be in the best position to have the discussion if you’re comfortable and have the necessary information.

With the Right Information You Can Handle Most Credit Negotiations Yourself

However, if you are not comfortable negotiating on your own behalf, that’s fine too. In that case, the fees might be worth it, however, I recommend you still follow steps 1 and 2 above for your own benefit. This will ensure they negotiate in good faith and that you both have access to the same information regarding your debt should any issues arise.

If you’re going to pay a fee, pay for convenience and quality of service. Before the Credit Repair company is done, the outcomes you want include: 1) the lowest interest rate possible, if applicable; or 2) determine if any of your collectors are willing to settle for a negotiated amount or settlement less than you currently owe (some may require cash payment; others may agree to forgive or reduce the outstanding amount owed). Note that in most cases these settlements will be reported by your creditor or lender on your credit report, typically reflected on your report for seven years. This will temporarily lower your credit score and make it more difficult to get credit or low-interest rates. If you continue to make consistent payments on your current or future debt, this should be reasonably easy to overcome with time.

Remember, these are conversations you can lead yourself if you choose. The Credit Repair company is charging you for negotiating on your behalf. Be sure to research user reviews online for any companies you’re interested in or refer to the Better Business Bureau to ensure they’re in good standing and have a solid reputation before sending any fees or money. If it sounds too good to be true, it probably is. If you’re going to pay, it’s best to use a reputable company than to lose your money twice on a fraudulent company that doesn’t have the skills to negotiate on your behalf or in your best interest. Lastly, you can also refer to episode PB56: The Truth About Credit ft. Liz Weston for additional tips on locating free and reputable consultative providers in your area through services like The Garrett Planning Network and others.

Best of luck!

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