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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.

Debt Consolidation versus Debt Settlement

To answer your question: In short, yes (some) work and yes, they are (in my opinion) a waste of money. Saying this though, just because I think they are a waste of time, doesn’t mean that you might not think the complete opposite. Plus, it may be worth checking out sites like https://debtconsolidationnearme.com/for more information about debt consolidation services. You may find that this was the solution you have looking for to help get your financial situation back on track.

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.

What you are paying for is convenience. Depending on the company, this convenience can come at a hefty cost. Typically, they will 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 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 on Earth at this point). We use and recommend Mint.com and CreditKarma.com.

Related: I Used Mint Wrong for Years and You Probably Are Too

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 debt settlement options. This might be a painful and time-consuming conversation, but it is your debt so you are in the best position to have the discussion when you have the right information.

With the Right Information, You Can Handle Your Own Negotiations

However, if you are not comfortable negotiating on your own behalf, that’s fine too. In that case, the fees might be worth it. For your own benefit, I recommend you still follow steps 1 and 2 above first.

This will ensure they negotiate in good faith and that you both have access to the information regarding your debt should any questions arise during the talks.

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).

Remember that in most cases these settlements will be reported by your creditor or lender on your credit report. This will temporarily lower your credit score and make it more difficult to get credit or low-interest rates in the short-term. If you continue to make consistent payments on your current or future debt, this should be reasonably easy to overcome in the long-term.

If you choose, these are all conversations you can lead yourself. The Credit Repair companies charge for negotiating on your behalf. Before agreeing to any fees or exchanges of money, 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. If it sounds too good to be true, it 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 in your best interest. Lastly, refer to episode PB56: The Truth About Credit ft. Liz Weston for additional tips on locating free and reputable debt consolidation and credit card counselors in your area.

Best of luck!

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