Debt Counselor Tips

By Roger Sorensen, courtesy of Investing Page

Last year nearly 1.5 million consumers turned to the bankruptcy court system to seek relief from their debts. Much of that debt was consumer debt racked up on credit cards. Medical bills were the second largest cause of debt. Along with the rise of bankruptcy cases there is a veritable explosion of nonprofit credit counseling agencies seeking to “assist” consumers with their debt management. Unfortunately, the name does not always describe the company these days.

Some state regulators and even the IRS have investigate these counseling companies for fraud and other corporate no-no’s:

Example 1: Nonprofit company A is hooked up with for-profit company AA. When a client comes to company A, they pay a “voluntary” fee and then are set up with company AA which makes them a debt consolidation loan. Ergo, no counseling took place, lifestyles did not change, and the consumer will be back in credit card trouble again within a few short years.

Example 2: Nonprofit company C sets up an easy-once-a-month repayment plan for the client. The fee for this plan can range from a small “contribution” to equal to one months repayment amount. Then the company fails to pay the bills on time, or at all, and the client winds up with a worse credit history. What can you do to protect yourself from these for-profit nonprofits?

  • Call the Better Business Bureau and see if the credit counseling agency has any complaints lodged against it.
  • Check out the website for National Association of State Charities Officials and find the state agency charged with oversight of charitable groups in your area. Are there any complaints on record?
  • Don’t rush and fail to read your contract and make sure you understand every word. If you don’t understand what the contract says, don’t sign it.
  • Get all oral promises in writing, avoid outrageous claims and don’t believe claims that creditors settle for less than the full amount owed. Many creditors are requiring more stringent scrutiny of debtors before even reducing interest.
  • Watch the hustle about “voluntary fees”. Either a fee is required, or not. Pay attention to the monthly service charges for the DMP – debt management program. If the non-profit company requires an upfront fee equal to one month’s repayment, go somewhere else.
  • After you do sign up for a DMP, check with your creditors on a regular basis to make sure the company is doing what they promised and paying your bills on time. Even if you are with a debt management program, when the creditor doesn’t receive their money, the damage is
    done to your credit report.

    The IRS has begun to weed out the bad companies from the legitimate counselors. Still, you have to do your homework and find a good counseling organization that will help you set up a budget to ensure that you can afford the repayment program.

    When looking for a debt counseling company, I recommend that you do a search engine search for “Consumer Credit Counseling Service” (CCCS) plus your state or city. This will help you narrow your search down to the members of the Consumer Credit Counseling Service in your locality. Also, you can look at which is the website for the National Federation of Consumer Counselors, many of whom operate under the label of Consumer Credit Counseling
    Service. This label is a term used only by accredited agencies who are true non-profit agencies legitimately operating for the good of
    the debt burdened public.

    One final word of warning, if it sounds too good to be true, it probably is. When you seek a consumer counselor to help you set up a debt management program, don’t sign anything unless they actually counsel you and help you set up a budget you can live on and still make the monthly payments to pay off your debts.

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