Not all debt relief created equal

It’s not surprising many debt relief and consolidation firms have ramped up their advertising campaigns considering the number of people tumbling further into debt.

But some of those companies offer services that are too good to be true and the Better Business Bureau issued information to help consumers understand different types of debt relief and what to watch out for.

“Consumers are bombarded every day with ads and e-mails offering services to manage or reduce debt and it’s hard to know which offer will work for them, let alone if the company can be trusted,” said Paula Fleming, BBB vice president of communications and marketing.

Debt relief typically comes in three forms, according to the Bureau:

Debt negotiation companies claim that they will negotiate with a consumer’s lenders to lower the total amount of debt owed for an upfront fee. Unfortunately, some consumers who paid for debt negotiation services found out that the company never contacted their lenders, but instead, took their money and ran. Because the debt negotiation company made it sound like they had everything under control, the consumer stopped talking directly with their lenders and ended up slipping deeper into debt. Relying on debt negotiation firms could also put a serious dent in a consumer’s credit report.

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Debt consolidation companies offer to roll up various debts allowing the debtor to make one lower payment to the company, rather than many payments to the different lenders. While debt consolidation can make paying monthly bills more manageable, some companies tack on high fees and charge exorbitant interest rates, which means the consumer is paying much more in the long run.

Companies that offer debt elimination rely on many different schemes but they all hinge on the notion that credit lines are illegal. Debt elimination companies typically provide, for an upfront fee, a document for the lender that supposedly absolves the consumer of the debt.

Unfortunately, the document has no bearing whatsoever on the debt owed and consumers paying for such services have found that they’ve wasted money on a debt elimination scheme that would have been better spent on actually paying back their debts.

Complaints to the bureau about debt management companies rose 19 percent in 2008, according to Fleming.

The bureau offered three ways to protect yourself from further debt-related headaches.

Always stay in touch with your lenders and try to work out a plan with them before hiring outside help.

Check out the company via the bureau’s reliability reports for free at

Credit counseling companies are often a good option. They are frequently nonprofit organizations and offer financial advice for free or for a small fee, according to the release.