Are you credit card debts piled high? Do you find your credit card applications are being rejected? Are the best credit cards withheld from you? Then you’ve probably considered looking into a “credit repair” company. You see their billboards and TV ads all the time. They say they can reduce your debt AND boost your credit score. But can they?

Much of what they say sounds too good to be true, and it is. Some credit counselors will just worsen your situation, not improve it. They’ll leave you in a lurch ... after you’ve already paid them, of course.

Now, not all credit counselors are hucksters. Some are legitimate businesses that really can help you dig your way out of debt. A reputable company should be a non-profit organization that seeks to educate consumers about credit use, not just magically make their debts disappear.

In other words, a good credit counselor will actually counsel you, offer advice on handling your debts and finances. They’ll help you come up with a budget that works for your income and lifestyle, and they’ll have educational resources and free workshops. They’ll have no problem, if they’re truly on the up-and-up, with providing you information free of charge. They’ll explain how they operate and answer all your questions honestly.

If you’re in too deep with your creditors, debt management might be the solution. The way it works is, you pay your credit counseling service a monthly service fee, and they take care of things with your creditors. You give them a set amount per month, and they distribute that among the people you owe money to, based on the arrangements they’ve made. Often, creditors will agree to very low interest rates or reduced principal payments, simply because it’s better for them to get some of their money back than none at all, which is what they’d get if you went bankrupt.

This debt management plan can be effective, but it takes several years before it’s finished. You’re debt-free when it’s finally done, but usually part of the deal is that in the meantime, you can’t be applying for credit cards. The debt management plan should be your last resort, and be wary of any credit counselor who’s promoting it as the best or only solution right off the bat.

If a debt management plan does prove to be the best solution, make sure you know which of your creditors are participating and which ones have declined. Anyone not involved must be paid by you under the usual terms. Furthermore, don’t listen to any credit counselor who wants money up front or who promises to have all bad credit removed from your credit report. They’re lying: Bad credit can’t be removed from your credit report if it’s accurate and up-to-date. Honest credit counselors understand you can’t pay them up front.

Some dishonest credit counselors pitch programs called Debt Negotiation or Debt Settlement. You should never, ever go along with this. Here’s what they say: They tell you to stop paying anything at all on any of your credit cards.

After this has gone on for several months, and your accounts are all deeply in arrears, the credit counselor talks to the creditors and gets your debts marked “uncollectible.” At that point, the creditors will be eager to take a much, much lower payoff amount, because it’s better than nothing. Thus your total balance is reduced, and you’re better able to pay it off.

Just one problem: What do you think all those months of non-payment have done to your credit report? It’s totally trashed, obviously! What’s more, all the principal that the creditors erased is considered by the IRS to be income, and you’ll be taxed on it as though it were actual income!

When you bring this up to the credit counselor, they’ll say that yes, your credit report will be harmed. But it’s OK! Because when it’s all over, they’ll go through and fix it up again!

How do they do that? Well, they don’t, of course. It’s smoke and mirrors: They’ll go through and dispute every single negative item on your credit report, including the ones that are obviously correct and accurate. The credit bureaus have to investigate all the disputes, and while they’re doing so, they have to remove the disputed items from your report.

So during that period (about a month, while they’re investigating), sure enough, your credit report will be spotless. That’s when your credit counselor will claim “mission accomplished” and demand his fee. A month later, when the investigations are done and the bureaus decide all that negative information was accurate after all, it’s back on your report, right where it started. And good luck getting a hold of the credit counselors now!

Credit counselors can be very helpful when they’re honest and reliable. You need to understand that debt cannot be eliminated overnight, and that neither can bad credit. It takes time, patience, and self-discipline. But once it’s over, you can once again apply for credit cards and take advantage of the best credit card offers.

Avoiding Shady Operators:

Here is a list of things to be aware of when selecting a credit counselor:

• Steer clear of organizations that charge for information
• If an organization won't help you because you can't afford to pay their fees, look elsewhere
• Don't count on verbal promises - get it in writing
• Don't use the company unless they are licensed in your state
• Don't go with a company that pays its employees on commission, or where they’re paid according to how many people sign up. And how do you know? ASK.
• Don't go with a company unless they offer a wide range of services, including budget counseling, as well as savings and debt management classes

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