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Not all credit-counseling agencies honest
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You will see a lot of ads on the television that show how easy it is to become debt free. Smiling faces in the ads make you a believer that credit counseling can help you get out of debt instantly. However, there are many dis-honest and shady credit counseling firms in the business to make a quick buck. These phoney credit counseling agencies will provide a sub-standard service and charge you above average fees to setup and monitor your debt account and plans. A good credit counseling firm will always have ties with the Better business bureau. Being a member of BBB gaurantees that the credit counseling agency is honest and reputable and cares for its client. When they put an advertisement, they can surely be considered as a honest company who will work on reducing your debt levels and help you become debt free.
Credit Counseling To Control Debt
Credit card debt counseling is meant to provide a way for credit card holders to handle large debt accumulated that creep up unnoticed. The high interest rates and penalties for late payments makes it oftentimes difficult to manage.
The best way to manage the credit card debt is to enter a weekly repayment mode. It is much easier to clear the weekly money spent rather than the entire mo... Read credit counseling article
Not all credit-counseling agencies honest
In the world of television commercials, switching toothpaste brands will improve your love life. Gourmet dog food will transform your cantankerous mutt into an obedient show dog. And with just a phone call, you can free yourself from a mountain of crushing debt.
Real life is much more complicated, particularly where your finances are concerned. Getting out of debt is hard. And if you sign up with an unscrupulous credit-counseling agency, your problems could get worse.
Unfortunately, the number of bad apples in the credit-counseling business is increasing, according to a report by the Consumer Federation of America (CFA) and the National Consumer Law Center (NCLC). That's not surprising, because the potential market is huge. The average household's credit card balance has ballooned to $8,940, up 173% from a decade ago. Many families have fallen behind on their bills because of the slack economy.
Reputable agencies make a sincere effort to help consumers get out of debt. But distinguishing between legitimate agencies and shoddy outfits that gouge and mislead vulnerable consumers is difficult, consumer advocates say.
Although a few states have cracked down on agencies for engaging in allegedly unethical practices, the industry is largely unregulated. That means consumers seeking counseling are on their own. There are, however, steps you can take to protect yourself. Beware of counseling agencies that:
Push you into a debt-management program. In a typical debt-management program, the credit-counseling agency contacts your creditors and tries to negotiate a lower interest rate. You make a single monthly payment to the agency, which pays your creditors. In return, creditors pay the agency a fee based on the amount of your debt the agency recovers.
Some agencies, eager to collect on payments from creditors, pressure clients into signing up for debt-management plans, even when that may not be in the individual's best interest, the CFA says. In some cases, financial counseling courses may be enough to help individuals get a handle on their debt, says Lydia Sermons-Ward, a spokeswoman for the National Foundation for Credit Counseling, an umbrella organization for counseling agencies.
Dodge questions about their fees. Be wary of an agency that says its services are free or that payment is voluntary, says Deanne Loonin, staff attorney for the NCLC. Some agencies claim payments are voluntary, then pressure customers to pay, she says.
The cost of counseling varies among agencies. At NFCC agencies, the cost of setting up a debt-management plan ranges from zero to $50, Sermons-Ward says. Maintenance fees range from $10 to $25 a month. The Association of Independent Consumer Credit Counseling Agencies, another umbrella group, limits setup charges to $75 and maintenance fees to $50 a month. Most members charge less, says Joel Greenberg, a trustee for the group.
Cambridge Credit Counseling charges a fee equal to the first month's payment to creditors, a practice criticized in the CFA report. Cambridge officials counter that customers who stick with the program receive rebates that exceed the amount of the upfront fee. They also argue that the fees pay for services that aren't available at other agencies.
Make sure you understand the cost of the program before signing up. A credit-counseling agency should be able to tell you how much it charges, or at least give you an estimate. Get a quote in writing before you sign any contracts, the CFA recommends.
Skimp on customer service. Consumer advocates recommend using the "20-minute test" to evaluate a counseling agency. An agency that offers you a debt-management plan in less than 20 minutes hasn't spent enough time reviewing your finances, the CFA says. A good counseling session takes at least 30 to 90 minutes.
Consider visiting an agency before signing a contract and request a face-to-face consultation. Ask about the credit counselor's credentials and training.
Promise the moon. In an effort to distinguish themselves from competitors, some counseling agencies have launched extensive marketing campaigns. Many reputable agencies advertise their services. But be leery of ads that claim an agency can help anyone get out of debt, Loonin says. "For some people, the causes of the problem are much more complex than counseling or a debt-management program" will solve, she says.
For example, a debt-management plan won't help you deal with so-called secured debts, such as your mortgage or car loan.
Have a history of complaints. The Better Business Bureau received 1,480 complaints about credit-counseling agencies in 2002, up 467% from 1998. You can check out a company at www.bbb.org.
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Choosing a credit counseling agency
If you are considering Credit Counseling, it means you are looking to change your life. Choosing to reduce your debt with the help of a Certified Credit Counselor is a huge, and positive, step towards gaining financial stability. However, it is also a very serious decision that should not be taken lightly.
Credit Counseling can improve many aspects of your life. It can help you get out of debt faster and improve your credit, just to name a few. And there are many agencies out there that would love to quickly enroll you in their Debt Management Program. However, not all agencies are created equal and not all agencies are truly looking out for your best interest. As with most things in life, if it sounds too good to be true, it probably is. That's why we're going to show you:
What to look for in a Credit Counseling Agency
What questions you should ask
And Warning Signs that you may not be dealing with an ethical practice
So what should you look for first while considering Credit Counseling? Well, at a bare minimum, you should look for a Not-For-Profit, experienced credit counseling agency that can provide personalized service, coupled with sound financial education to ensure a long-term solution to eliminating your debt.
Other important factors include:
AICCCA or NFCC Membership
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) and the National Foundation for Credit Counseling (NFCC), are industry associations that require extremely high standards for all of their members. If the agency you are dealing with is a member in good standing with either of these associations, it is a good sign that they are properly accredited and have certified counselors because the associations require it.
ISO 9001 Certification or Council on Accreditation (COA)
The agency should have ISO accreditation or COA, which means that they have successfully completed independent audits to ensure that they are complying with all the industry standards. If the agency is a member of the AICCCA or NFCC, they must have one of these accreditations.
Certified Counselors
The credit counselors you speak with on the phone should be trained and certified by an independent certification body such as the Association for Financial Counseling and Planning Education (AFCPE). This way you can be sure that your counselor really knows what he or she is talking about.
Also, make sure that your counselor will not receive a bonus for enrolling you on their program. That's a sure sign of a salesperson, not a credit counselor!
Once you have found a credit counseling organization that meets these requirements, there are still a hand full of questions that you should be asking in order to find the absolute best agency for your needs. Some of these questions should include:
What about costs?
Whether they request fees or contributions, they should be disclosed and should be reasonable. Anything over $50 for a consultation fee or monthly fee or contribution is NOT reasonable.
MAKE SURE the agency is not planning to keep the first month's payment as their fee! This is known as a bad practice in the industry and has been the source of state attorney general lawsuits as well as many individual actions against the agencies that do this.
Is the agency licensed to do business in your state?
Some states require that credit counseling agencies be licensed or that its counselors pass certain minimum standards in order to do business in that state.
What can you expect in the counseling process?
In the first place, did they ask you about your particular situation and tell you about some options or did they start selling a solution, such as a debt management plan to you without knowing anything about you? If so, thank them for their time and look elsewhere.
Ongoing Education?
The better agencies will provide monthly newsletters, website articles and training programs for you to take advantage of. As part of the non-profit mission of credit counseling agencies, this education should always be provided to you free of charge.
Out of Debt in Approximately Five Years?
If you enroll in a debt management plan, make sure you will be out of debt in approximately five years. Also make sure you will get monthly statements from the agency showing your progress.
How Long Will They Hold Your Money?
There is no reason for the agency to hold your check or money order any longer than ten days to ensure that it will clear the bank. Electronic payments can really help get your payments to your creditors faster. Ask about this option.
Where Will Your Money Be Held?
Your money should be held in a separate Trust Account. This will ensure that the agency can't use your money for anything other than paying your creditors. Again, some states actually require this.
Who are you dealing with?
Ask if any of the important functions of the agency are outsourced or handled by another company, especially a for-profit organization. If so, they're not "truly" non-profit are they?
Who Are the Agency's Board Members?
They should be independent, experienced professionals with diverse backgrounds that are not also employees of the agency. That way, you can be more assured that the agency is following ethical business practices.
Get a Copy of the Contract Before You Sign It!
Make sure the contract includes:
Disclosure of the amount of your fee or contribution
Description of the services to be provided
An estimate of the payoff schedule for the debts
Disclosure of the termination provisions of the agreement
Options for resolution of disputes
Finally, we would like you to be aware of a few warning signs to look out for, because if you notice any of them there's a good chance the agency you're dealing with is not the Credit Counseling agency for you.
The following are some red flags that you should look for when interviewing an agency:
Unrealistic Low Monthly Payments
Money Back Offers
Loan Programs
If the promises being made seem like they're too good to be true, they probably are. Beware.
Aggressive Sales Tactics
Aggressive sales tactics, such as unsolicited phone calls or e-mails. You should never feel pressured into signing up with an agency. As we mentioned before, Credit Counseling is not for everyone and is a serious commitment that requires serious consideration, not high-pressure sales.
Keeping Your First Payment as a Fee
Some agencies might try to take your first month's payment as a fee or contribution. This is completely unethical and a major red flag to look out for. It is extremely important that your first payment, and every payment there after, go towards paying down your debt.
Beware of Debt Settlement Companies
Debt settlement companies typically hold onto your monthly payments until they have a designated amount accumulated, then they send a payment to your creditors. This can cause your creditors to continue showing you as delinquent, continue charging you late fees and continue calling you at home. These are all the things you're trying to avoid!
You have made the first step towards reaching financial freedom. Now you must make the next big step and choose the Credit Counseling Agency that is best for you. Remember, you want to work with an agency whose goals are in line with yours; reducing your debt and providing the support you need to live a life of financial stability.
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