What You Need to Know About Credit Counseling Companies
With many more credit counseling firms, there are few good companies and other companies out to take advantage of unsuspecting consumers. When people are in debt, their desperation to fix their credit situation makes them more vulnerable to being conned. I have known people thinking that a company was going to help them get out of debt only to find out that the company closed up with no forwarding address. To make matters worse, they find that the credit card companies with their debt have not been paid as promised. So what can you do to not be one of their unsuspecting victims?
First, understand the motives of the company vying for your business:
1) Companies that really want to help you
These are companies that want to understand the whole situation and help you with your budget. They know that the problem with debt is not just paying off the debt, yet educating their clients so that they do not get back into the same situation again. The focus is understanding the whole situation so that they can focus the education where the consumer needs it to be to continue, instead of just focusing on getting out of debt. Their fees are also clearly defined and easy to understand.
2) Others companies (there are too many to lists)
Many companies have their intentions to make money as their first priority instead of helping their clients. Some have even been set up as non-profit organizations that were set up to look like they were in the business to help, yet were the entry way to push their clients to their for-profit operations. Even though businesses need to focus on making money to stay in business, it should not be to the detriment of helping their clients get out of debt as some companies in this group do.
How do you avoid being a victim to companies who are in the later camp? How can you tell the difference? There are a few signs of trouble that should raise a red flag
1) Advertising
The companies who spend the most on advertising may be a red flag to look out for. The companies that really want to help their clients usually have a good reputation where they do not need to promote themselves as much. I tend to ask friends for a recommendation to help weed through the sea of many companies vying for any service. And, then double check with the Better Business Bureau (www.bbb.org) before pursuing. Thus, it may be better to trust a recommendation before an advertisement airing at 3:00 in the morning.
2) Pushing a plan on you
If you are sitting in an office for less than 10 minutes and they have already given you a plan to follow, their intent may be focused more on selling you a plan than helping you out.
3) Wanting you to sign on the dotted line before leaving
A good company will let you think about what you are getting into and more importantly to check them out before signing any agreements. Those that want you to sign before leaving are probably thinking more about the commission they are going to get for signing you up.
4) Do not clearly discuss their fees with you
Fees should be clearly spelled out and fully documented; preferably not in fine print. Compare the fees from one company to another and read the fine print to make sure there are no hidden fees.
So how can you find the best counseling firm?
1) Take a step back
When we hit the time to call a credit counseling service, many people feel pressed to find something quick because they have gotten fed up with all the calls about their debt. The tendency is to rush out for the magical solution as quickly as possible because the stress has gotten to be too much. The best thing to do is take a deep breath and know that you have options. Even if you need to take a day off to visit 3 credit counseling firms and review the information overnight, it is better than trying to fit one appointment in and sign out of desperation.
2) Read up on the topic
There are a lot of things to think about when hiring a credit counseling firm. Some of the better publications may be from our own government (Federal Trade Commission) that has looking into this business especially after the most recent bankruptcy reform.
Fiscal Fitness: Choosing a Credit Counselor from FTC
For People on Debt Management Plans: A Must-Do List from FTC
List of companies approved by U.S. government to offer financial education needed to proceed with filling for bankruptcy
National Foundation of Credit Counseling with a list of companies accredited through their organization (mostly its original Consumer Credit Counseling Services affiliates)
3) Take the first step in handling your finances
This may sound counter intuitive when looking for help with your situation. However, a good credit counseling service is going to ask some basic questions: What is your budget? What debt do you have? Have you called the credit card companies to lower your rates? It makes the process go a lot smoother when you come prepared. Plus, it is about taking another action step towards owning your power. Sometimes people give their power over their finances to credit counseling services and are not that involved. Yet, because the consumer needs to continue on with their finances after their debt issue is solves, it is best to be a partner with a counseling service and share the responsibilities. Plus, it make you more aware of your situation so that you can ask better questions to see which plan will work best for you.
4) Comparison shop (look for the right plan not the easiest solution)
As I mentioned before, it is not wise to jump at the first credit counseling service that comes your way. It is best to look at the different options that you have and pick the best plan for you. This may not be the easiest plan, for example a plan that promises to reduce your debt or a company that pays the bills for you. Each of these types of plans has been known for the possibility of serious abuse and fraud even though they seem to be the simplest plan for the consumer. Thus, do not take the easy way out and find the advantages and disadvantages of each plan. You can even review this with an independent financial planner or a financially astute friend. This is a big financial step that should not be taken lightly.
Credit counseling may be a very valuable step in taking control of your finances and, in particular, debt. However, because of consumer’s desperation, the field is ripe for fraud and abuse for consumers that do not fully investigate the company they sign with. Unfortunately, it is not even as easy as saying going with _______ to get the best service. I remember asking a client what counseling firm he went to. I asked if it was Consumer Credit Counseling Service which he replied that he made sure it was due to thier reputation. Unfortunately, it turned out to be a company with a very similar name that shut it doors soon thereafter, leaving him high and dry and deeper in debt. Thus, the key is to fully analyze your decision by interviewing a few agencies, getting a recommedation from trusted friends and double checking with the BBB and even with your State’s attorney general’s office before signing on the bottom line.
April 18th, 2007 at 8:55 pm
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