When confronted with serious debt, people often run to credit counseling agencies for help. True, you can find reputable non-profit organizations or credit counseling services who offer genuine debt relief. However, Federal Trade Commission (FTC) warns consumers against fake credit counseling agencies who may take advantage of your bad debt situation.
Take note that being a “non-profit” credit counseling organization does not guarantee that it is legitimate. Some groups may claim to be non-profit yet may charge unreasonable fees and hidden costs for their services. If you’re not aware of deceptive tactics that fake agencies use, you could be in trouble. For example, a false agency may force a client to enroll in a DMP or Debt Management Plan. Although, enrolling in a DMP is not bad, you need to make sure that you’re dealing with a trusted credit counseling service.
What is a Debt Management Plan?
Under a Debt Management Program, you would be submitting monthly payments to the agency. In turn, your agency would be the one to distribute your payments to the corresponding creditors. This is usually done after a credit counseling agency has negotiated with your creditors.
The danger about this arrangement is that your credit counseling agency may not be submitting your payments to your creditors on time. Some fraudulent organizations have been found to use their clients’ money instead of submitting them to the appropriate lenders. As a result, the borrower is stuck in debt with his creditors without his knowledge. If you have decided to enroll in a DMP, make sure that your creditors are promptly receiving your debt payments.
What if the credit counseling agency that handles your debts goes out of business?
If your credit counseling agency is going out of business, you need to act right away. Here are the steps you should do:
If you’re in an automatic payment system, call your bank and stop your payments immediately.
Speak with your creditors and inform them about the situation. Tell your creditors that your credit counseling agency has shut down. Explain to your creditors that you are willing to continue with your current payment plan even without the aid of the agency.
Submit your payments directly to your creditors and make sure that you submit your payments on time.
Check your credit report. Make sure that all your payments have been properly submitted to your creditors while you were still enrolled in the DMP.
Copyright © 2008 Consolidate4Free.com
Andrea Smith is a writer and consultant with Consolidate4Free.com and has been providing consumers and business owners with Free Debt Consolidation Advice since 1990. For years she has helped people with loan and credit problems especially pertaining to Debt Consolidation and Credit Card Debt Consolidation. Copyright 2008.
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Comments: 3
Thanks for keeping us posted on the credit-consolidation option Andrea. Care to fill us on in how the standard credit consolidation program is reported to the credit bureaus?
The lowering of your interest rate is not reported to the credit bureau, however, I do know that many credit consolidation programs do lower your credit score because they are negotiating with your lender/credit card company to lower your total balance due (take a loss). Since you are technically not paying the full amount, even if it is agreed upon by the lender/credit card company, it will be counted against you.
I was told to call back in ONE YEAR. I asked if "call back in one year" would guarantee me a better rate and what rate that would be, and they said that they couldn't guarantee me anything ahead of time. At which time I stopped paying my bill.
I could not see paying my DISCOVER Card bill for another year, without chipping away at the principal, at 28.99% interest, without any guarantee of a fee decrease after a year of on-time payments. Yes, after stopping payments for 6 months to 1 year, they were much more willing to talk, but you need to take a whack on your credit score and gamble and run up the balance before making any progress with negotiation. It's ridiculous.
These banks and mortgage companies have really caused themselves the problems they're in. They practically take the ability to pay their credit card bills away from the consumer by raising their APRs to unreasonable levels across the board. Then, they tighten credit for everyone else because nobody is paying their bills, and raise the rates for the "responsible" cardholders also.
It doesn't even stop there, they then have to lay off their employees because they're losing money. Ridiculous! And they study finance and economics? Where's the logic here?