Roberta Namee, an official with the Better Business Bureau of Kansas, is warning consumers about the possible dangers of using credit repair companies. According to Namee, those companies often offer more than they can realistically (or even legally) deliver to consumers.

For individuals facing financial challenges and looking for ways out of debt, a more effective option may be personal bankruptcy. Unlike credit repair companies, which often just pile loans on top of loans, Chapter 7 bankruptcy may allow individuals to actually erase debt, eliminating it forever.

The BBB has identified some less than perfect practices of credit repair companies. For example, the companies often promise to renegotiate loans with banks in order to obtain lower monthly payments. But customers sometimes find months after signing up that the credit repair company never even contacted the bank. As a result, the customer is now much further behind on payments to the bank and has already made several payments to the credit repair company as well.

Namee says another shady practice credit repair companies may use is to tell customers that they can raise the customer’s credit score. If there is inaccurate information on a person’s credit report, the person can usually clear that up without the help of the credit repair company. If the information is accurate, there is no legal way for the credit repair company to change the report.

Unlike bankruptcy, credit repair companies do not actually eliminate debt. At best they are likely to simply add another loan to the customer’s already difficult-to-handle pile of debt.

Bankruptcy, on the other hand, actually does give individuals a chance at a new financial beginning. Old debt can be permanently and legally eliminated. Filers have the hope of starting with a new financial life.

For anyone struggling with debt, it is advisable to at least discuss the situation with an experienced bankruptcy attorney. The attorney can explain the pros and cons of the options and, if desired, walk the client through the steps of bankruptcy.

Source: The Wichita Eagle, “Look for red flags before hiring a credit repair company,” Roberta Namee, May 12, 2012

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