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Watch Out for Credit Counseling Pitfalls

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Authored by Christopher Reed in Credit Card
Published on 12-06-2008

If you are one of the 30 million Americans shoulder-deep in debt and desperately seeking a solution, you will probably want to seek the help of credit counselors. You, however, doubt their sincerity when they assure you that they can easily eliminate your debt problems. Is this possible? If you play your cards right, it is.

Debt counseling and management is a $7 billion industry in the U.S. today. The best in the business can really help you out of you financial crisis. Unfortunately, the industry has also become the medium where fraud and deception thrive. Not all players in the debt counseling arena are legit. Unscrupulous operators can run away with your cash.

The Darker Side of Credit Counseling

The increase in the number of consumer debt in the early 90’s saw the emergence of hundreds of credit counseling agencies trying to outdo their competition. Some are sincere in their jobs to help cash-strapped clients. Others charge ridiculously high fees where a large portion of it go to their pockets and use what’s left of the money to pay off their client’s creditors.

Some of these operators aren’t even real credit counselors at all. They swear to eliminate your debt problems for pennies to the dollar but first you have to cough up a $3000 to $5000 upfront fee. When they make enough cash, they will vanish with your money and take their dark trade to a new place, usually under a different alias.

When to Seek Credit Counseling

The credit counseling business has grown because of the sheer volume of desperate customers. At no point in time has the American people been so besieged by overwhelming financial crisis, including the rising incidence of bankruptcies.

Remember, you must not seek credit counseling if you can still keep up with your bills on time. If you complain about high interest rates, then you can negotiate with your credit card company to lower the rate or take your account somewhere else.

Only consider credit counseling when:

  • Minimum credit card payments can’t be made
  • You are always late in payments on your regular bills
  • Bill collectors and creditors camp out on your lawn
  • You can no longer negotiate a workable repayment scheme with your creditors

Look Out for These Warning Signs

Should you decide to get credit counseling, use due diligence before signing up with a credit counseling service. The warning signs to look out for are:

  • Ridiculously high upfront fees. Typically, credit counseling services ask for a $10 to $15 set-up fee. If you are charged a lot more than that, then you can bring your business elsewhere, unless you opted for exclusive personal coaching that can warrant the high fee.
  • No legitimate affiliation. Above board credit counseling agencies are affiliated with the Association of Independent Consumer Credit Counseling Agencies or other recognized organizations.
  • Late or missed payments. Some fly-by-night companies line their pockets with most of your money. Ask how much money is received by your creditors each month and on what date are the payments sent.
  • False claims. Beware of false promises that you can get rid of your debts with very little or no money involved.

Offline and online, there are a lot of credit counselors ready to help you in your time of crisis. Finding the right ones will require patience and due diligence.

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