Recently passed by Congress, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will require people who are filing for bankruptcy to first undergo mandatory credit counseling.
This is probably not a bad idea; after all, many people with problem debt could probably benefit from credit counseling. A good credit counselor can assist clients with problem debts in establishing a repayment schedule, creating a personal budget, and learning how to avoid debt and credit problems in the future.
The problem is that with the estimated one and a half million additional people seeking credit counseling each year, there will undoubtedly be more credit "counselors" entering the market, and many of them are only interested in reaping huge profits at the expense of their clients. There are already a number of credit counseling firms working in the marketplace that advertise themselves as "nonprofit", when they actually are closely tied to for-profit debt consolidation firms. These agencies will strongly encourage their clients to consolidate debt through their partner company, and the result may be a long-term loan for the client that doesn't help them at all, but reaps huge profits for the consolidation firm. How can someone who is genuinely seeking legitimate, helpful credit counseling choose a counseling agency wisely?
*Counselors should listen. If they start pitching a solution to you during the first fifteen minutes you are there, you should be suspicious. A credit counselor should be gathering information about you in order to determine how best to help you. They can’t possibly know how to help if they don’t understand your problem. Unless, of course, they don’t care about your problem and only want to sell generic “solutions.”
*Watch out for firms that want excessive fees up front. Be particularly wary of nonprofit agencies that ask for fees or “voluntary contributions” or nonprofit agencies that tell you that they cannot help you if you do not pay a fee upfront.
*Beware of firms that ask for a sizeable fee to obtain a copy of your credit report. Such agencies should be able to obtain your report at no charge, and you are entitled to one report per year for free.
*Sometimes, bankruptcy is unavoidable. Watch out if the agency doesn’t mention bankruptcy at all, or if they change the subject if you bring up the topic. Debt consoldators cannot make any money on bankruptcy cases, but sometimes, that’s your only option.
*Shop around. Talk to several different agencies and compare what they tell you. Any agency that differs dramatically from what the other agencies are telling you should probably be avoided.
*Check with your local Better Business Bureau, and ask if they’ve had any complaints about the agency.
*Watch out for firms that offer quick solutions to your problems. You didn’t get into financial trouble overnight, and you won’t get out of financial trouble overnight. Any competent debt or credit counselor will know this and will undoubtedly tell you that working your way out of debt takes time.
*See if the agency belongs to the National Foundation for Credit Counseling or Association of Independent Consumer Credit Counseling Agencies. Many do.
By taking a few simple precautions before agreeing to work with a credit counselor, you may save yourself a lot of grief and a lot of money later.
Thursday, July 5, 2007
3 Signs Of Debt Consolidators To Avoid
If you find yourself in debt and you are thinking about contacting a debt consolidator or a debt management company, there are a few things that you should know. First, not all debt consolidators are trustworthy. You will find that some consolidators are more concerned with taking your money than they are with helping you to manage your debt. Second, not all debt consolidators and debt management companies are legitimate. They only use this front to steal identities. When shopping around, use the three signs shown below to determine which debt consolidators you should avoid.
Sign #1: Unusually Low Payment Quotes
To lure trusting customers, shady debt consolidators use one of the oldest tricks in the book: the bait and switch. The debt consolidator starts by quoting unusually low monthly payments. The quotes are so low, that it would seem ridiculous to choose another company. Unfortunately, once you have signed up for the program, the debt consolidator will end up saying that there was some sort of problem or miscalculation and the quote will no longer stand, leaving you with a high monthly payment. When shopping around, use quotes to compare consolidation fees, not monthly payments.
Sign #2: Large Upfront Fees and Deposits
Some debt consolidators request enormous fees or deposits that must be paid upfront. These fees are sometimes in the hundreds, or even thousands, of dollars. Some debt consolidators promise to return the money to you after you have completed the program. Unfortunately, that rarely ever happens. Beware of this common debt consolidation scam.
Sign #3: Personal Information Requests
You should be very wary of a debt consolidator who requests to see your personal information, such as bank account numbers, social security numbers, etc., before providing you with a quote. They could be using this information to commit identity theft. The only thing a debt consolidator needs to provide an accurate quote is your creditor’s names, balances, and interest rates.
Sign #1: Unusually Low Payment Quotes
To lure trusting customers, shady debt consolidators use one of the oldest tricks in the book: the bait and switch. The debt consolidator starts by quoting unusually low monthly payments. The quotes are so low, that it would seem ridiculous to choose another company. Unfortunately, once you have signed up for the program, the debt consolidator will end up saying that there was some sort of problem or miscalculation and the quote will no longer stand, leaving you with a high monthly payment. When shopping around, use quotes to compare consolidation fees, not monthly payments.
Sign #2: Large Upfront Fees and Deposits
Some debt consolidators request enormous fees or deposits that must be paid upfront. These fees are sometimes in the hundreds, or even thousands, of dollars. Some debt consolidators promise to return the money to you after you have completed the program. Unfortunately, that rarely ever happens. Beware of this common debt consolidation scam.
Sign #3: Personal Information Requests
You should be very wary of a debt consolidator who requests to see your personal information, such as bank account numbers, social security numbers, etc., before providing you with a quote. They could be using this information to commit identity theft. The only thing a debt consolidator needs to provide an accurate quote is your creditor’s names, balances, and interest rates.
How To Compare Debt Consolidators Online
Debt consolidation companies negotiate lower interest rates for your unsecured bills, such as credit cards. By reducing your interest rates, you can pay off your debts sooner. These debt consolidation programs don’t use a consolidation loan, so you can avoid additional credit issues. The following guidelines will help you find a reputable company that will not take advantage of your financial situation.
Request Quotes
Whether a debt consolidation company is non profit or for profit, they will charge monthly fees to service your payments. Fees range from $14 to $69 depending on the number of creditors involved. Upfront fees or a percent of your monthly payments are usually a sign of a fraudulent non-profit company. For profit companies do charge a fee since they aren’t subsidized by creditors.
There are several legitimate debt consolidation companies out there. You want to make sure you are getting the best fees, so don’t settle for the first quote you receive. To get accurate quotes, be prepared with a list of creditors, account balances, and interest rates. You can also decide how many accounts you want to consolidate, leaving a couple out to use for personal or business reasons.
Expect Questions
The best debt consolidation programs will ask questions before they give you quotes. Only by knowing your financial situation can they determine how long it will take to pay off your bills.
You should also be wary of companies that steer you toward debt settlement if you can’t pay their fees. Such programs don’t improve your credit, and you also get charge fees for something you could do on your own.
Demand Pay Off Dates
One sign of a good debt consolidation program is their ability to offer pay off dates. Each account will have a different date since account interest rates and balances will vary. However, general dates, like less than five years, are a sign of a shady company.
As with anything, if the claims are too good to be true, they probably are. By researching companies and asking questions you will not only protect yourself from scams, but also find the best company to help you reduce your debt.
Request Quotes
Whether a debt consolidation company is non profit or for profit, they will charge monthly fees to service your payments. Fees range from $14 to $69 depending on the number of creditors involved. Upfront fees or a percent of your monthly payments are usually a sign of a fraudulent non-profit company. For profit companies do charge a fee since they aren’t subsidized by creditors.
There are several legitimate debt consolidation companies out there. You want to make sure you are getting the best fees, so don’t settle for the first quote you receive. To get accurate quotes, be prepared with a list of creditors, account balances, and interest rates. You can also decide how many accounts you want to consolidate, leaving a couple out to use for personal or business reasons.
Expect Questions
The best debt consolidation programs will ask questions before they give you quotes. Only by knowing your financial situation can they determine how long it will take to pay off your bills.
You should also be wary of companies that steer you toward debt settlement if you can’t pay their fees. Such programs don’t improve your credit, and you also get charge fees for something you could do on your own.
Demand Pay Off Dates
One sign of a good debt consolidation program is their ability to offer pay off dates. Each account will have a different date since account interest rates and balances will vary. However, general dates, like less than five years, are a sign of a shady company.
As with anything, if the claims are too good to be true, they probably are. By researching companies and asking questions you will not only protect yourself from scams, but also find the best company to help you reduce your debt.
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