Question: I know that I need help to get my credit under control, but I have recently read that some debt-counseling services are expensive and unethical. How do I know where to turn?
Answer: You’re on the right track if you’re ready to reduce your debt load. Approximately nine million people sought help last year to handle credit problems.
Some signs that might lead you to professional credit counseling help include:
– You are not able to pay the minimum on your credit card bills.
– You are often late in paying your regular bills.
– Creditors and collection agencies call you frequently.
– Your efforts to work out repayment plans with your creditors have failed.
Some people avoid counseling because they hear that it will put a black mark on their credit record that is worse than bankruptcy. This is not always true because late and missed payments may already have taken a toll on your credit report. Although some creditors will not do business with you if you’re working with a credit counseling service, others will consider your efforts to pay off your debts as a positive action and will accept your business. A spokesperson for the company who created the FICO score – the score used by most lenders to determine whether to grant you credit and the interest rate to charge you – says that credit counseling has no impact on your FICO credit score formula.
Debt-counseling services also are available, but unfortunately some of those companies charge excessive fees and may not perform as promised. A report by the National Consumer Law Center and the Consumer Federation of America found that some of the newer credit counseling companies are in business for high profits rather than to help consumers reduce their debt. In October, the International Revenue Service and the Federal Trade Commission issued an announcement that warned consumers about advertisements promising quick fixes to credit problems.
An alternative may be to handle credit problems yourself by contacting your creditors and asking for help. However, if you decide to seek debt counseling, be aware that there are good agencies and bad ones. Because of the bad ones, you’ll have to be careful in your selection. Debt counseling services may be nonprofit or for-profit. Some firms have registered as nonprofit with the Internal Revenue Service but their real objective is to maximize their fees rather than help their customers.
In my next column, I’ll list ways to evaluate the legitimacy of debt counseling services.
by Judy McKenna, Ph.D., CFP, Family Economics Specialist, Colorado State University, Cooperative Extension, email@example.com, 491-5772