Much of the following is based on the FTC’s publication, Choosing A Credit Counselor . It is a compilation of questions and information to consider when determining the legitimacy of a credit counseling organizations. Many credit counseling agencies are non-profit entities, but that does not necessarily mean they are credible and it definitely doesn’t mean they are government sanctioned (other than for tax purposes). Here are some warning signs to watch out for before enrolling or using a non-profit debt service:
-They do not offer any free educational services. This is the first sign that the credit counseling company you are considering may be deceptive (unless they are for-profit). The main provision that qualifies a debt counselor to be non-profit is that their chief purpose must be to offer educational resources for the public about credit and debt topics. This includes public seminars, free personal consultations and budgeting advice. If it is clear from the moment that you discuss your situation with a counselor that he or she is pushing you into a credit card debt management plan (DMP), they are best to be avoided. Some other warning signs: they charge for the consultation, educational materials, or both. The first sign that the company you are considering is credible is they have taken the time to analyze your income and expenses to determine whether you are well-suited for a DMP, or if a better option is for you to cut back on any unnecessary monthly outflows. Moreover, if they do suggest a debt management plan, is a large emphasis placed on giving you the resources and information to prevent this sort of problem from occurring in the future? If so, you have probably found a good firm to work with.
-They charge high fees. You will know that you are dealing with a potentially crooked credit counseling agency if they demand your first payment as a set up fee or “not-so-voluntary contribution”. Non-profit debt organizations not only should not be charging this much as an initial payment, but they should not be “requiring” a payment to begin with if you do not have the means to pay it. A legitimate credit counselor should not be charging more than $39 as an initial set up fee or $35 per month thereafter. Similarly, if you get the impression that the non-profit company you are dealing with compensates their employees “per sign up” or based on the amount you are willing to contribute as charity, steer clear.
What To Watch Out For From For-Profit Debt Settlement Companies
Debt settlement, also known as debt negotiation or debt reduction, is a much different form of debt consolidation. For one, most of the debt settlement organizations you will encounter are for-profit entities. This is not a warning sign in itself. After all, our entire economy is based on the profit-incentive and our belief that the urge to make money oftentimes encourages innovation, better service, while making hiring better-qualified workers more possible. Due to the major differences between debt settlement and credit card counseling, however, one must look for distinct warning signs:
-They do not assess your situation thoroughly. Debt settlement is not for everyone and any reputable firm will gladly admit this. Other than the obvious factors that will establish whether settlement is a good route for you (tolerance for poor credit, collection calls, and the possibility of litigation), a lot of what determines your suitability for a debt negotiation service has to do with your recent account activity and who your creditors are. If the debt settlement company you are considering is not asking you whether or not you have made recent cash advances, luxury purchases, or balance transfers, stay away. Along the same lines, if your debt is from a personal loan you took out several months ago, settlement may not be for you. The reason is that creditors are reserved the right to refuse to negotiate and if they believe you took out the credit with no intention of paying it back, which is far more likely if you did any of the aforementioned, they are a lot less likely to settle. A reputable settlement agency will try to gauge whether or not your favorable debt reductions can actually be obtained.
-Their references do not look good. If after looking at their BBB report or into the resources available here at PayingPaul.Com and you notice a lot of complaints or negative publicity, then you are better off doing more shopping.
A third group to watch out for are debt elimination companies. To read more about this type of agency, read our article about debt scams, rip offs, schemes, and frauds.
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