Table of Contents

Introduction

Consumer Debt in the United States

For many Americans, managing household debt is a serious struggle. Debt is money owed from one party to another. Debt comes in many forms, but the most common for the average household is credit card debt. As of March 2014, the average American household with at least one credit card has $15,252 in credit card debt. This does not include high-interest payday loans or other loans, which along with credit card debt make up consumer debt, or debt incurred on the purchase of goods When consumers use credit cards or take out loans and accumulate debt, their debt accumulates interest, increasing the overall amount of money they owe. This makes it that much more difficult to pay off debt and gain control of finances. Americans are not alone in relying on their credit cards and incurring consumer debt. In 2011 South Koreans swiped their credit cards on average 129.7 times, the highest in the world. Americans used theirs 77.9 times, less than Canada at 89.6 times, but more than Australia at 74.4 times. Why was South Korea the world leader in credit card usage? The answer is twofold:

  • The government encouraged credit card usage to help boost the country’s economy through people buying goods on credit
  •  There is a cultural push to own luxuries, attend college, and incur other large expenses that may be beyond a person’s financial means

A budget is often a helpful tool to reel in spending and begin spending within one’s means. Learn how to create a budget using our Comprehensive Guide to Budgeting and Savings.

Household Debt and Its Effect on Finances

Credit card debt is only one form of debt. Households incur other, often larger forms of debt, such as mortgages and student loans, which are long-term loans that take years, if not decades to pay off. As a result, a large percent of the average household’s take-home pay, or disposable income, goes to paying off debts.

Debt Graph NPR

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As shown in the graph above, the percent has gone down slightly in recent years, but that is largely due to government action to lower interest rates during the recent financial crisis, helping out struggling families in the process. Consumers need to understand what debt is, how debt works, and how to begin to get themselves out of common debt situations. In this Guide to Credit Management, we’ll cover:

  • How credit is measured and how to check your credit report
  • All the ways in which you can establish credit
  • What is good debt, what is bad debt, and how to live with bad credit
  • What credit cards are, how they work, and the different kinds you can have
  • How to protect yourself from credit card fraud
  • How to get out of crippling debt

How Credit Works

What is Credit?

Credit is the amount of money a person, household, or company can borrow and pay back to a lender at a later date. There are four types of credit:

  • Revolving credit –  the borrower is given a credit limit and is expected to make payments based on their balance and any accumulated interest
  • Charge cards – with charge accounts, the borrower must pay their balance every month or on some other predetermined basis
  • Service credit – when you pay your utility bill each month, you’re actually paying back a credit to the service provider for the previous month
  • Installment credit – as with any kind of loan or mortgage, the borrower is loaned a certain amount of money and agrees to pay back that principal, plus interest, over time

Why Use Credit?

Say you want to buy a cup of coffee from your local coffee shop, but you don’t have the cash on hand to make the purchase. The barista can let you buy the coffee on credit, meaning you can have it now without paying in cash on the condition that you pay for it later, by a set date. Credit was once used as a last resort, an emergency safeguard to be used only instances where the buyer did not have cash on hand. Now, buying on credit is common and oftentimes the primary form of purchasing for many kinds of goods. People use credit to pay for expenses including:

  • Everyday purchases like groceries and gas
  • College Tuition
  • Houses
  • Business start-up costs
  • Medical bills

For larger expenses, such as paying for college or buying a house, it just isn’t feasible for most people to pay for it all at once. Most people don’t have the resources on hand to pay for the average 4-year college education, which costs somewhere between $9,000 at a public university and 30,000 at a private university for tuition and fees alone, or to buy a house, which costs on average almost $273,000. By taking out loans, which are a form of credit in which a bank or other institution loans the money to a borrower with the expectation that the money will be paid back with interest, people are able to pay little by little over time for these larger expenses.

Building Credit

Let’s go back to the convenience store example. You want to buy the soda but don’t have any cash. The store clerk has never let you buy anything from his store on credit before; how does he know that he can trust you to pay it back? It may seem like a catch-22: to be able to use credit (otherwise known as building credit), you have to have credit, but it’s hard to get credit if you don’t have any credit already. However, there are many ways to build credit:

  • Bank accounts: Simply opening a bank account and handling your own finances can help build credit. By proving you have a steady income and can responsibly make regular deposits and withdrawals, having a bank account can help build credit. Be aware that negative balances caused for overdrawing an account will reflect poorly on your credit-building efforts.
  • Utilities in your name: Lenders want to know whether credit applicants will make timely payments according to the terms of the credit or loan given. Utilities bills are a common, regular bill people have to pay that can be used to build credit. Set up accounts in your name for the water, electric, or internet bills, and be sure to always pay your bills on time.
  •  Employment history: Paying off credit means that the lender will expect money later. Holding a steady job and proving you have a steady stream of income goes a long ways to proving to creditors that you can make your future payments. Additionally, lenders will look at your past earnings to determine whether it’s a safe bet for them to loan you money; it’s not in a lender’s best interest to make a loan you won’t be able to pay back. Be sure to hold onto paystubs for future credit or loan applications.
  •  Residence history: Rent is one of the larger payments people make on a consistent basis. Paying your rent on time and having a good rental history is an important beginning step to building credit.
  •  Small loans: Some smaller loans are easy to obtain, such as buying an appliance on layaway from a department store. For younger borrowers, student loans to help pay for college are one of the better ways to build credit. They usually are easy to obtain and have low interest rates.
  •   Secured credit cards: Sometimes called a “training” credit card, secured credit cards are tied to your bank account, so the amount of credit you can use (called your credit limit) equals the amount in your account. If you have $100 in your account, you have a credit limit of $100; you cannot make a purchase above your credit limit, or in this case, what is in your account. This is different from an unsecured credit card (which is usually what people refer to when speaking of credit cards) which have a set credit limit not tied to a bank account or any other collateral. Secured credit cards not only can be used to build credit, but some lenders may allow users to graduate to an unsecured credit card after a period of time.
  •  Credit cards: Unsecured credit cards, which are usually referred to simply as credit cards, are an excellent way to build credit because they do not have the safety net of a secured credit card. Always pay your monthly bill on time, and see our section Credit Card Guide for advice on making payments and developing healthy credit card habits.

How Credit is Measured

The simple answer is that people receive a credit score based on their credit history, which lenders use to determine

  • Whether to lend to you or not
  • How much to lend to you
  • At what terms (interest rate, length of loan) to lend to you

A credit score is a three-digit number value assigned to you ranging from a low score of 300 to a high score of 850. The higher the number (your credit score), the higher your probability of repaying a loan on time and the lower your risk of being delinquent (not paying back debt on time) to lenders. A person with a high credit score has an easier time of taking out loans, and often receives lower interest rates, than a person with a low credit score. Five weighted factors are used to determine a person’s credit score:

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  • Payment history: This is the most important factor in determining your credit score. Your history of making payments on time – or not – will go a long ways to helping or hurting your credit score. This is why it is crucial to establish a payment history through utility bills in your name or rent payments, and then to make those payments on time and in full.
  •  Amounts owed: How much debt you owe has almost as much impact on determining your credit score as your payment history. Carrying a lot of debt will hurt your credit score because it means a higher risk of being delinquent on payments. However, having some debt is good.
  •  Length of credit history: Your credit track record is important in determining your credit score. A person who has managed their credit well for 5 years will have a better credit score than a person who has managed it well for 5 months. This is one reason why it takes time to build credit and earn a higher credit score.
  • New credit: Applying for credit also affects your credit score. Applying for and/or opening too many accounts in a short period of time will hurt your score.
  • Types of credit used: People with higher credit scores typically have a good mix of different kinds of debts, such as credit cards, mortgage loans, student loans, and auto payments. Being able to healthily maintain different types of credit accounts helps raise your credit score. This is another reason it takes time to build up a credit score, because it takes building a credit history to take out different kinds of loans and lines of credit.

Who Calculates Credit Scores?

Used in 90% of lending decisions in the United States, the FICO Score is the industry standard credit score. Oftentimes when people refer to their credit score, they are talking about their FICO Score. The score was created by Fair Isaac Corporation and calculates scores based on credit reports obtained by the three major credit bureaus, using the weighted factors detailed above. Be sure to request a FICO score when getting a credit score. If you get a credit score from a competitor, they may use a different formula and score on a different scale. You’ll want FICO because it’s the score the vast majority of lenders use in the U.S. The three credit reporting agencies in the U.S. are:

The three credit bureaus compete to collect data on the credit histories of U.S. consumers, and may present and/or interpret this data differently. As a result, they may each have slightly different information on the same consumer. A consumer may find that they have three similar but slightly different credit scores, because each credit bureau is calculating slightly different information. Some consumers may find there is a large discrepancy in their score from one bureau to the next. Resources: – Want to know more about why your credit scores are different for the 3 credit bureaus? myFICO has some answers.

Getting Your Credit Score

Credit scores are not free – you must buy them from Equifax, Experian, and TransUnion. Visit their individual websites for purchasing options and to obtain them. You can also try services like CreditScore.com, which will give you scores and reports from all three bureaus. CreditScore.com is a subscription service, so you don’t pay a one-time fee to see your scores. However, this may be a good option for people who want to track their credit scores over time before applying for loans, such as the year before buying a home.

What is a Good Credit Score?

“Good” is a relative term, and that applies when talking about credit scores too. What may be a good score to one lender may not quite be good enough for another. As mentioned, FICO scores range from 300 to 850:

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  • Great, 760-850: You have great credit and are a very low-risk borrower. You should have no problem getting approved by lenders.
  • Very Good, 725-759: You have above average credit and should be approved on most credit applications.
  • Good, 660-724: The average consumer has good credit. Consumers with good credit may have limited credit histories, and just need to keep doing what they’re doing over time to build up to very good credit.
  • Not Good, 560-659: You have below average credit and may be approved for some credit, limited credit, or have difficulty getting credit. You may also face higher interest rates because lenders consider you a risk.
  • Bad, 300-560: Consumers with bad credit have a proven track record of being a risky borrower, either through late payments, missed payments, heavy debt, or bankruptcy.

Resources: – Learn more about your FICO score and what it means with this myFICO booklet.

Viewing Credit Reports

Though you have to pay to see your credit score, credit reports are available for free to every consumer once a year.AnnualCreditReport.com is the only authorized source under Federal law for receiving a free annual credit report.

  •  Consumers can either request all three reports at once from the three credit reporting companies or get one report at a time.
  • Getting one report at a time and spacing them out periodically can allow you to monitor your credit throughout the year.
  • You can download your free credit reports by visiting AnnualCreditReport.com.
  • Or you can get them over the phone by calling 877-322-8228.
  • Or you can download and complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service – P.O. Box 105281 , Atlanta, GA 30348-5281

What is in My Credit Report?

–  Your personal information:

  • Name
  • Address
  • Social Security number
  • Current address and previous addresses

–  A list of your credit accounts, such as:

  • Credit cards
  • Auto loans
  • Mortgages
  • Student loans

– Information about any credit trouble, including:

  • Delinquencies (late or missed payments)
  • Debts in collections
  • Bankruptcies
  • Foreclosures
  • Lawsuits
  • Wage attachments
  • Liens
  • Judgments

– A list of everyone who has requested to see your credit report in the last two years (called credit inquiries)

Reading Your Credit Report

Once you’ve obtained your credit report, it’s important to read it and understand the information about you in it. While we’re in the process of building out our own tool, please visit: http://www.aie.org/managing-your-money/credit-scores-and-reports/read-a-credit-report.cfm to review how to read a credit report. Hover your cursor over each section of the report for an explanation of each section and what it means. Resources: – Each credit report from each credit bureau may be slightly different. See these guides from Equifax, Experian, and TransUnion on how to read their individual reports.

Why Should I Review My Credit Report Annually?

  • Make sure there are no errors in your credit report that could keep you from getting credit or obtaining the best terms possible (like lower interest rates)
  • Knowledge is power: knowing your credit situation can help you negotiate the best terms when making a major purchase, like a car, and know what a fair deal is for someone with your credit history
  • Some employers may look at job applicants’ credit histories when hiring. Make sure your credit information is accurate when applying for a new job
  • Likewise, landlords will check credit histories when receiving applications from potential tenants. Don’t let a mistake in your credit report keep you from getting your dream apartment
  • You can see if you are the victim of identity theft, where someone else has been using your name and information to obtain credit. Visit the Fighting Back Against Identity Theft website to learn more

The Benefits of Having a Good Credit Score

Being a responsible borrower with a good or great credit history has some serious benefits that go beyond higher chances of approval for credit and loans.

  •  You can borrow more money. Credit card companies will raise your limits and banks may be more willing to loan you more money.
  • You’ll get better interest rates. With a good credit score, lenders will want to lend to you, and will try to make it attractive for you to borrow money from them. They’ll do this by offering better interest rates, whether on a home mortgage or financing a new car. These interest rates can really add up. Citing an example from the Better Business Bureau:
    • Say you’re looking for 30-year mortgage for $250,000.
    • A person with a FICO score of 760-850 would get an interest rate of 4.74% from the lender. That’s a payment of $1,303 per month.
    • Another person with a FICO score of 620-639 would be charged an interest rate of 6.33%, which would make monthly payments cost $1,533.
    • Over the life of that 30-year loan – of 360 monthly payments – the difference in cost for the two people would be almost $90,000!
  • It’s easier to rent. Whether it’s an apartment, a rental car, or a weeklong vacation condo, people with good credit scores are approved more often and receive better terms than people who have bad credit.
  • – Credit card companies will want you and will give you better deals to entice you to use their services. People with good credit can get approved for the best reward cards, which can give users cash back, points toward rewards, low interest rates, and other benefits. Of course, once you’re approved for one of these cards, don’t change your spending habits – or else your credit score might tumble as a result.

Resources: – Lenders can turn you down because of your credit score – but not because of your race, sex, religion, or other determinants. Know what your rights are under the Equal Credit Opportunity Act.

Tips for Building and Maintaining Good Credit

  • Pay your bills on time. This can’t be stated enough. The most important factor of your credit score is whether you pay your bills on time. When offered, be sure to set up automatic payments and have your account balances in order for when those payments are due. If you’re behind on bill payments, make getting caught up your number one priority.
  • Don’t max out your credit limit. In other words, don’t spend all the credit you have. A common rule of thumb is never to use more than 30 percent of your given credit at any time (and closer to 10 percent is ideal). Having credit near or at the limit (“maxed out”) makes it difficult to get new credit and hurts your credit score.
  • If you’re near your credit limit or carrying a lot of debt, work to reduce your debt. We cover some strategies to reduce debt in our section on Debt Management Strategies.
  • That said, it’s good to carry a little debt. If you have a credit card, be sure to charge a few expenses each month to it, and then always pay your bill on time. This is a good idea because you need to establish a history of good credit behavior to build credit. Use some credit each month to create debt and then pay it off.
  • Open new lines of credit only as needed. Opening accounts just to have a better mix of credit and debt won’t help you have a better score.
  • Ask to have old mistakes erased. If you’ve been a good borrower for several years but missed a payment long ago, make a request to the lender to have that removed from your credit history. Creditors may be willing to make past late payments, missed payments, or other minor delinquencies go away if you have a good record with them otherwise. You’ll never know unless you ask, and it could help improve your credit score.

Personal Debt Management

For nearly every household in the United States today, it is impossible to live debt-free. Some expenses, such as buying a house or paying for college, cost too much up front for them to be feasible for the average person, and so it is necessary to take out some debt. Additionally, it is not smart to be debt-free – without incurring some form of debt, you can’t build credit and improve your credit score. Be smart about how you take on debt and manage your debt situation. In the next sections, we’ll discuss the differences between good debt and bad debt, and share some strategies for how to pay off any debt you already have.

Good Debt vs. Bad Debt

There is such a thing as “good debt.” Understanding what debt is considered good and what is bad can help you gain control of your finances, improve your credit score, and make smart investments for your future. Good Debt The best kind of debt is debt used to purchase or pay for something that has the potential to increase in value. Good debt is an investment – by incurring debt now and paying interest on it in the short-term, you hope to reap returns worth much more than your initial payment in the long run, cancelling out the cost of the interest charged. Some forms of good debt include:

  • Home mortgage
  • Student loans
  • Real estate investment loan
  • Business loan for business start-up or expansion costs

Additionally, good debt:

  • Has low interest rates
  • May have interest that is tax-deductible, saving you money on your taxes
  • Allows you keep the rest of your savings free for daily expenses, emergencies, and other investments.

Bad Debt When we say a form of debt is “bad,” that does not mean it is to be avoided at all costs. Some forms of bad debt are necessary and inevitable. Smart consumers limit the amount of bad debt they incur, only taking out what they need when necessary. The characteristics of bad debt are:

  • Debt incurred to buy something that depreciates, or loses, values
  • Debt incurred for something that will not generate additional income
  • Debt with high interest rates

Some common examples of bad debt include:

  • Auto loans: Loans to buy a new car, though necessary in many situations, are considered bad debt. It is estimated that when a new car is driven off the lot it loses 11% of its value automatically. In addition, many consumers buy cars more expensive than they need, incurring unnecessary debt. Auto loans also typically have high interest rates.
  • Credit cards: Considered some of the worst kind of debt, credit cards have interest rates and are most often used for goods that do not retain value, such as clothes, groceries, toys, and other everyday purchases – not to mention how readily accessible credit cards are to the average consumer. Again, credit card debt is not categorically bad; limit credit card spending and pay off your balance each month to avoid interest. Learn more about credit cards in our Credit Card Guide.
  • Payday loans: Payday loans are short-term cash loans available to most anyone, regardless of credit history. When people are short on rent or spending money, they can take out payday loans as a stopgap measure. These loans charge exorbitant interest rates, sometimes as high as 500%, and can trap borrowers into constantly borrowing to pay off past loans. To learn more about payday loans, see the facts.

Debt Management Strategies

In this section, we’ll cover some debt management strategies for different levels of debt. Before we get into that, there are some universal debt management strategies everyone should follow, regardless of debt situation.

Avoiding Borrowing to Pay Debt

Whether you have a little consumer debt or serious debt from credit cards and medical bills, it is crucial not to borrow to pay off past debt – that is, to go into more debt to pay other debts. Obviously, adding debt – and interest on top – only makes it that much more difficult to get out of debt. Unfortunately for many people, their regular debt payments are so large that going into debt to pay off debt is their last option before defaulting on a loan, or failing to pay it.

Debt-To-Income Ratio

Understanding your debt-to-income ratio and managing that ratio will can help avoid such scenarios. Your debt-to-income ratio is the percent of your net income that is used to make debt payments. To calculate your debt-to-income ratio:

For instance, say your household has a monthly net income of $5,000. You pay a mortgage of $1,000. Your auto loan payments are $200 a month. Your student loan payments are $500. All other debt payments are $300 each month. Total, your household makes $2,000 in debt payments each month. Your debt-to-income ratio is 40%. This means that 40% of your net income goes to paying off debt – and that’s just the monthly minimums. Lenders look at debt-to-income ratios when deciding whether to approve consumers for loans. Typically, a 43% debt-to-income is the highest ratio a borrower can have to still be approved for a mortgage. In general, a debt-to-income ratio between 20-30% is considered healthy, but the lower the better.

Debt Management Strategies

People with Some Debt

The Profile:

  • May have a manageable credit card balance
  • Some long-term loans, like a mortgage or student loans
  • Have a healthy debt-to-income ratio
  • Make debt monthly payments on time and in full
  • Carry mostly good debt
  • Have a minimum of bad debt
  • Do not borrow to pay off other debts
  • Has an above average credit score
  • Has a financial plan for the future

What To Be Concerned About:

  • Maintaining their healthy debt-to-income ratio
  • Not taking on more debt than they need
  • Continuing to build credit through taking out good debt

Debt Payment Strategies:

  • Continue to make monthly debt payments on time and in full
  • Consider making an effort to pay off higher interest loans first by making more than the minimum payments. This way, you can save money long-term on interest and lessen the amount you will owe, while decreasing the amount of compound interest that can accrue
  • Shop around for better interest rates, particularly on credit cards. You are an attractive customer to lenders, and can probably get better deals

People with Heavy Debt

The Profile:

  • Has a credit card balance near the limit
  • Has heavy long-term loans, such as medical bills
  • Has a high debt-to-income ratio, near the 43% limit for a mortgage
  • Occasionally makes late monthly debt payments
  • Carries an above average amount of bad (consumer) debt
  • May occasionally have to borrow to pay other debts
  • Has an average to below average credit score
  • Worries about financial future, including concerns about foreclosure and/or bankruptcy

What To Be Concerned About:

  • Debt increasing from heavy to overwhelming
  • Reeling in spending
  • Incurring less bad debt
  • Having to take out more debt to pay current debts
  • Any emergencies that may make it necessary to take out more debt

Debt Payment Strategies:

  •  Stop using any credit cards and incurring more debt!
  • Create a budget to reel in spending, especially any unnecessary spending. See our Comprehensive Guide to Budgeting and Savings to learn more.
  • There are two main schools of thought for tackling debt. The first step to both is to create a budget and decide how much more per month above the minimum you can afford toward debt repayment. Then:
    • The Stack Method: Look at your debts, and order them from highest interest rate to lowest. While making minimum payments on all debts, focus your additional repayment resources to paying off the debts with the highest interest rates in succession. By repaying the debts with the highest interest first, you incur less interest and are able to repay your other debts faster as you go down the “stack.”
    • The Snowball Method: The debt snowball method is mostly used for consumer debts, such as credit cards and auto loans. Again, rank all your debts, but this time in order of lowest balance owed to highest. While making minimum payments on all debts, concentrate on repaying the debts with the lowest balances owed first. The idea is that by paying off these debts first, and seeing your progress, you will be motivated to continue working towards being debt-free.
  • In addition to using one of these repayment methods, you can try consolidating your loans, or combine outstanding loans into one loan with a lower interest rate and one (typically lower) monthly payment. Talk to your lender to learn what your options are.
  • Call your lender and see if you can work out new terms. Most reputable lenders will work with you if you are struggling to make payments – it’s in their best interest for you to make a portion of a payment rather than nothing at all. They may be able to lower your interest rates, accept reduced payments for an agreed upon timeframe, or lower the amount you owe. You’ll never know unless you ask.

People with Overwhelming Debt

The Profile:

  • Has several credit card limits that are maxed out
  • Has heavy long-term loans, and may have defaulted on one or several
  • Has a debt-to-income ratio above 43%
  • Regularly makes late payments, misses payments, or is unable to make payments altogether
  • Carries a large amount of bad debt
  • Regularly has borrowed to pay other debt
  •  Has a below average to bad credit score
  • Is facing foreclosure or bankruptcy

What To Be Concerned About:

  • Ruining credit
  • Lifelong debt
  • Getting a handle on finances and spending
  • Making debt manageable
  • Getting help

Debt Payment Strategies:

  • First, stop incurring more debt! Stop using credit cards, taking out payday loans, or any other form of credit
  • Get help and get debt counseling. Contact a certified credit counselor who can advise you on your options to manage your debt. Credit counselors are non-profit and often available locally through credit unions, universities, military bases, housing authorities, and other institutions. Make an appointment to meet in person. Be aware that some credit counselors may charge high fees, or may not be a reputable service. Be sure to do your research through reading consumer reports and the fine print.
  • Bankruptcy is a consumer’s last resort, but for people with overwhelming debt, may be their only option. Individuals and companies alike file for bankruptcy when they are unable to pay outstanding debts. After filing, the debtor uses whatever assets are available to pay creditors. Then, the debtor is relieved of their debt obligations. Filing for bankruptcy is a legal procedure involving attorneys, court hearings, and a judge. No one wants to file for bankruptcy, but for people who cannot get out of debt, it can help give them a fresh start.
    • Bankruptcy laws vary from state to state. For federal bankruptcy laws and a general guide to the bankruptcy process, see these Bankruptcy Basics.
    • Benefits:▪      People who file from bankruptcy get a clean slate. No more debt, no more calls from creditors▪      You can begin to rebuild credit and start a healthy financial lifestyle▪      Bankruptcy can assist against foreclosure (losing your home) or the repossession of a car or other assets▪      There is no minimum or maximum debt required to file bankruptcy
    • Drawbacks:▪      There are fees associated with bankruptcy, from paying attorneys to filing and court fees. It costs money to file for bankruptcy.
      • Consult with different bankruptcy attorneys in your area and compare prices
      • Visit your state’s website to find filing fees and other costs

      ▪      Bankruptcy stays on your credit report for 10 years, making it very difficult to get new credit or take out new loans ▪      You may have to sell some possessions (but not your house or car) ▪      Bankruptcy does not cover student loans or back taxes – those you will still have to pay off

Avoiding Scams There are many great organizations out there that help thousands of Americans with their debt problems. However, there are also organizations that prey on those same people, scamming them out of their money and sometimes making their debt situations worse. Be wary of companies that:

  • Advertise that they can “wipe your slate clean”
  • Guarantee they can erase all unsecured debt
  • Insist on payment before performing any work
  • Require personal information, including bank account numbers and social security numbers, before sending any information
  • Tell you not to contact credit reporting agencies yourself
  • Push you to enroll in supposed “debt relief” programs that incur more debt
  • Charge high fees
  • Try to sell you a Credit Profile Number or CPN

Resources:

  • The Federal Trade Commission offers information to help consumers protect themselves from credit repair scams.
  • Some companies may call you offering debt relief solutions. The FTC has caught many such companies trying to scam consumers. Read up on Debt Relief and Credit Repair Scams, and see the FTC’s press releases on the kinds of scams they’ve recently stopped.