Credit Counseling Services and Undeliverable Promises

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For many consumers, credit-counseling services provide debt management guidance and assistance. For others, however, debt counseling often turns an already bad situation into a nightmare. It is not uncommon for credit counseling companies to resort to deception in an effort to attract clients. It’s important to familiarize yourself with common consumer complaints associated with credit counseling services before choosing a firm.

 1. Non-Profit Credit Counseling Services Are Not Always Free

According to the Federal Trade Commission, a non-profit agency might advertise free services and then withhold the customer’s first payment as a contribution without ever disclosing its intent. This type of scheme is deceptive and has become the target of law enforcement investigations. 

2. Credit Counseling Services Make Unrealistic Promises

Firms often use deceptive terminology such as “cut your bills in half,” “lower interest rates” and “eliminate your debt.” The truth is that not all creditors are willing to work with credit counseling services. Even if the firm succeeds in getting you a lower interest rate, the firm’s fees often reduce the amount that should go toward paying off bills. 

Some companies will set up a low monthly payment plan to get you to purchase the plan. However, after a few payments, unreputable credit counselors often raise the monthly payment. A common explanation is that the creditor is requesting a higher payment. 

The fact is that credit-counseling services are familiar with each creditor’s requirements prior to you enrolling in the plan. Counselors use the lower-monthly-payment tactic to get your business.  

3. Credit Counseling Services Fail to Pay Creditors

If you seek the assistance of a credit-counseling agency, your counselor might instruct you to make one monthly payment to the firm. The firm in turn disperses the amount among your creditors. Unfortunately, many creditors receive late monthly payments or don’t receive one at all. The result is late fees, a higher balance on the account and a lower credit score. 

4. Credit Counseling Services Charge Undisclosed Fees

Some companies often neglect to inform their clients that up to 10 percent of the monthly payment will go toward the agency’s service fee. This means that the firm will keep $10 from every $100 that you pay. If you make a $300 monthly payment, the credit counseling service will keep $30 from each payment you make. This means that only $270 would go toward paying off bills. 

If you’re looking for a credit-counseling program, make sure you understand all the details. Whether any fees are involved or not, ask for the terms in writing before you sign up.

5. Pushy Credit Counselors

Exercise caution if a credit counselor pressures you to sign up for a plan. Do not sign a contract until you read it thoroughly. The document should include any fees involved as well as the repayment terms. Don’t hesitate to ask questions if you have doubts or you’re not clear on any of the details. 

Unnecessary debt management programs are another common consumer complaint associated with credit counseling services. It appears that credit counselors often become salesmen whose main concern is to sell debt management plans. 

Unreputable credit counselors will often strive to sell you a debt management plan (DMP) because incentives are involved. If your counselor convinces you to sign up for a DMP, he might refer you to a debt consolidation company. The debt consolidation company grants you a loan to consolidate your bills and the counseling agency receives an incentive for the referral.

Be leery of counselors who push debt management plans without discussing other options with you.  

To choose a reputable credit counseling service, make sure that your creditors will work along with the agency you select. Choose a service that offers actual credit counseling and education on how to live debt free. Credit counselors whose main focus is to enroll you in a DMP are not interested in helping you. Their main interest is to make money through incentives.

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