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Credit counseling scams are prevalent
Simple tips will help you avoid counseling scams
With credit counseling soon to be mandatory for bankruptcy filers, consumers need to be aware of how to avoid predatory counseling firms. Here are a few tips.
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Credit counseling can be useful, but be careful
With the new bankruptcy legislation, the Bankruptcy Abuse and Consumer Protection Act, about to become law, many consumers with no previous credit counseling experience will be exposed to this service for the first time. The new law requires this service as a prerequisite for a bankruptcy filing, and thousands of Americans will have to share the fine details of their financial lives with counselors who will assist them with debt management. On the whole, this is a good thing, as many of us lack basic money management skills. On the other hand, it’s a great opportunity for those who take advantage of others to profit from the misfortune of consumers with problem debt. Here are some tips that may help prevent you from becoming a victim of counseling scams.
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- Many credit counseling agencies advertise themselves as “nonprofit” concerns, but that doesn’t mean that they don’t charge money. Small fees, necessary to cover operating expenses and salaries, are standard. What aren’t standard are fees of thousands of dollars. Many “nonprofit” firms are actually fronts for for-profit debt consolidation companies. The nonprofit agencies encourage their clients to consolidate their debt using the services of the for-profit company, resulting in huge profits for the lender and disaster for the client, who often has to pay exorbitant fees and interest that he or she can ill afford. Ask about the fees. Is there a setup fee or a monthly payment? Will the agency keep the first payment, or does some of it go towards your debts? How are the counselors compensated? Salary or hourly wage? Or do they get commissions for directing you towards a profitable consolidation deal? These things are worth knowing, as a good counseling agency should be providing solutions that help you, not them.
- Will your credit card companies or other creditors work with this agency in order to help you pay your debts? Don’t take the agency’s word for it; call your creditors and ask them. Don’t take your counselor’s word for it that they can get your credit card company to waive late fees or reduce your credit card debt. Call your credit card company and ask them directly. In fact, you may be able to negotiate with your credit card company directly.
- Make sure that you receive any promises from the agency in writing. Any verbal promise is meaningless; the only thing that matters is what is written in the contract. If they promise you something, make sure it’s written down.
- Request a monthly report from your agency that outlines exactly where your money is going. It should detail how much money you paid, who received it, and how much was paid to each creditor.
- If you have any doubts about the legitimacy of the counseling service, make an inquiry with the local Chamber of Commerce or Better Business Bureau. They may have a list of complaints filed by former customers.
Before entrusting your financial life to a counseling agency, be sure to check them out. It just takes a few minutes, and it could save you thousands of dollars.
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