Tips To See If Your Credit Counselor Is Honest

Monday, June 13, 2011, 2:00 AM | Leave Comment

I receive email from credit counselors, more frequently now than ever before. And last week I received a phone call from such a person. But the problem was that the call was automated. There was no one in person on the other side. I just had to hang up. It happens to many folks, maybe more than reported in the media.

In emails, the general theme of the topic is for a small monthly fee,

  • The credit counselor will negotiate with my creditors to reduce or eliminate interest charges,
  • Consolidate my debts into one low monthly payment,
  • Handle all of the transactions.

The trouble is, many credit counselors are outright crooks, using deceptive tactics to separate debt-plagued consumers from their money. And, increasingly, they are succeeding.

Third world countries

I am an immigrant. Sometimes I wonder, Americans are such a smart people, why would they get into a trap of these crooks and their plans? Here, in America, there are so many venues you can take. I mean you don’t know what people are going through in third world countries.

There are no for-profit or non-profit organizations, no government protection, no court protection, no police protection. No nothing. Period.

When people get involved with some crooks like that in one of those countries, they are on their own. Only the strength of their arms and their family’s can help them.

You guys, here in America, are so lucky. You have protection from every which way, from all sides. So much information is available to you guys: Internet, city hall, state office, federal agencies.

Some background

There are very many good credit counselor companies that have helped millions of Americans pay off their debts since World War II. But during the past few years, there has been an increasing number of claims of abusive practices.

From 1999 to 2003, complaints filed annually with the Better Business Bureau (BBB) increased by 590%, from 1,140 to 7,862. Check Consumer Federation of America once a while to see what U.S. Congress is doing about consumers’ problems.

The experts say the number of rogue counselors preying on overextended Americans is soaring.

  • Some are collecting consumers’ payments and failing to distribute them to creditors,
  • Others are neglecting to disclose their sometimes hefty fees,
  • Increasingly, agencies are also enrolling people in one-size-fits-all debt-management plans with no regard for their unique financial situations.

That’s not to say that the entire industry is corrupt. Many credit counselors provide valuable services for reasonable fees.

Watch out for these credit counselors:

  • Charges

    The biggest problems in the credit-counseling industry is the fee they charge. Let’s say you have a debt of $10,000 and you pay $100 every month. Many companies charge as much as 10% of your monthly payment which, in this example, comes out to be $10. So you pay out $110 every month.

    The companies, very often, fail to disclose to consumers that their first payment will be retained as an enrollment charge. Consumers need to fully understand the fees involved before signing up with a credit counselor.

    Ask the agency to put the fees in writing. Some states have started to impose caps on the fees that agencies can charge each month. Check with your state.

  • Credit-counseling folks should give you more options

    The counseling company should give you several options to choose from. Go over the options with your lawyer, if possible, or with your family and friends. I know you may have a desperate situation, but still “don’t let them push you around.”

    If you feel like they are pushing just one plan because they might get more money out of it, you don’t have to take it. This practice has become too common in the credit-counseling industry. It’s all about enrolling people in debt-management plans because that’s the only product they have that they make money on.

    That means the credit counselor is taking advantage of your desperate situation. The reason is that many credit-card companies have significantly decreased their support for the industry which in turn means, in those circumstances, the consumers are on their own.

    With creditors limiting their fair-share contributions, and state governments capping the fees that counseling companies can charge for their services, the counselors have no other way to get revenue but through volume. That’s where the sale pressure comes into play.

  • The monthly payment must stay the same as originally agreed upon

    It’s so happens that more often than not, the low monthly payment that’s initially promised by a credit counselor is raised once a consumer has made a couple of payments. A lot of companies will lower the payment to get you into the program, and once you enter they tell you the creditors want a higher payment.

  • Don’t let them pressure you in signing up the contract upfront

    No matter what, don’t sign a contract with a credit counselor until all the details – specifically the repayment terms and any fees – are clearly spelled out.

In a Nutshell
Make sure before you sign on the papers, you understand the whole process.

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