Ethical Credit Solutions

Ethical credit solutions are available from respected sources such as government-approved credit counselors. Reputable credit advisers focus on basic credit fundamentals to create long-term strategies for credit repair or financial growth. The Federal Trade Commission warns that you should stay away from questionable credit solutions offered by so-called credit repair specialists, foreclosure rescue experts and debt settlement agencies. The FTC acknowledges that some of the firms are legitimate, but many others are scams.

Nonprofit Credit Counseling

Nonprofit credit counselors approved by the U.S. Department of Housing and Urban Development offer a wide range of ethical credit solutions. Counselors are available nationwide and initial consultations are usually free. The counselors specialize in resolving excessive debt, including credit cards, and are experts in foreclosure avoidance. If necessary the counselors will join you on three-way conference calls with your major lenders to work out credit problems. Find counselors in your area by visiting the HUD website or call a local charity such as the Salvation Army for a referral.

Debt Management Plans

Debt management plans are a specialty offering from credit counseling agencies and recommended by the Federal Trade Commission as an alternative to bankruptcy. Debt management plans focus on eliminating unsecured debt such as credit cards. The counseling agency takes control of your budget and pays most of your monthly bills, while negotiating more favorable terms with your unsecured creditors. The agency will regularly request lower interest rates and reversal of finance charges to help you pay off the card sooner. You must agree to remain in the program for four or five years while sending a lump sum to the agency each month covering the minimum monthly payments on your accounts. A monthly management fee is charged.

Debt Settlement

Debt settlement is another solution for credit problems and is endorsed by the FTC. However, the agency recommends you manage the process instead of hiring a debt settlement firm. Doing it yourself makes you more informed about your finances and empowers you. Debt settlement allows credit card and other unsecured debt to be paid off for less than the full balance, typically 20 to 70 percent of the total. It is an excellent solution for accounts that are several months behind and on the verge of being assigned to a debt collector. Contact your credit card company directly to discuss debt settlement. Simply ask the representative if you qualify for a settlement. Although really old debts are settled for about 20 percent, most settlements are for about half the balance.

Bankruptcy

Bankruptcy is an extreme credit solution, but it is effective. Chapter 7 bankruptcy eliminates unsecured debt in as little as three months, but only those with modest incomes will qualify. Others can opt for Chapter 13, which requires a payment plan of three to five years. Select bankruptcy only after exhausting all other ethical solutions.