Warning!What Most Consumer Counseling Services Dont Tell You

Jun 02, 2008 - 09:35 AM PST

If you’re considering help from a Consumer Credit Counseling Service Company there are some things you need to be aware of. First of all it hurts your credit. When you sign up for these programs most of them require you to close your accounts. A good portion of your FICO score is determined by how long you have had your accounts, when you close these accounts you knock down your score. Also these services show up on your credit. You might be told by these companies that lenders and creditors look at this as a good thing because it’s a sign you’re being responsible, this is not true. If they tell you this then hang up the phone or get out of their office. When these services show up on your credit you’re sending a message to that you’re not responsible enough to handle your own financial matters. Having this on your credit makes it harder for you to buy a home and obtain other types of credit. What’s really sad about this is that people with good credit and payment history will sign up for these programs with the goal of being debt free. These companies will put them in their program knowing they don’t need it and hurt their credit. The IRS has launched investigations into these companies looking to revoke non profit status. You can read the articles for yourself by visiting the links posted below. The new bankruptcy law requires you to seek counseling before you’re allowed to file. The IRS only wants legitimate companies to help the consumers. The IRS is aware that many of the companies do not help consumers. Most of them don’t offer meaningful education or counseling. According to an article on the NPR website, the IRS is revoking tax exempt status from some of the largest credit counseling agencies in the country.
Another thing these companies claim is that they will negotiate for you to lower your interest rate. This may be true; however, you can easily do this yourself. All you have to do is call up your creditors and ask. You don’t need amazing negotiating skills to do this.

These companies also have the primary goal to make money off of you, so they will most likely put you on a payment plan that will last a long time so they can continue to collect the most fees.

Below are some tips that I got directly from the Federal Trade Commission website.

Tip-offs to Rip-offs
Steer clear of debt negotiation companies that:
• Guarantee they can remove your unsecured debt.
• Promise that unsecured debts can be paid off with pennies on the dollar.
• Require substantial monthly service fees.
• Demand payment of a percentage of savings.
• Tell you to stop making payments to or communicating with your creditors.
• Require you to make monthly payments to them, rather than with your creditor.
• Claim that creditors never sue consumers for non-payment of unsecured debt.
• Promise that using their system will have no negative impact on your credit report.
• Claim that they can remove accurate negative information from your credit report.

Are there circumstances where someone may be in need of help from a legitimate Consumer Counseling Service? Yes. These services are for people who will be filing bankruptcy and it’s mandatory for them to use their services, and it’s for people who are out of control spenders. Just like alcoholics and drug addicts are hooked on those substances, they are addicted to shopping and are unable to handle their own finances. As I mentioned earlier read the article links below. A little knowledge today can save you a bundle tomorrow.

http://www.irs.gov/newsroom/article/0,,id=114575,00.html

http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm

http://www.npr.org/templates/story/story.php?storyId=5406174


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