Advertisement
Credit & Debt

Credit Advice You Can Trust

When you're looking for a firm to help you get out of debt, don't rely on an Internet search.

When Lanette Bridges set out to tackle her massive pile of debt -- $30,000 in credit-card bills and bank loans -- a couple of years ago, she turned to the Internet first. Bridges typed "credit-counseling services" into an online search engine to find an agency that would help her pay it off. Bridges, an assistant teacher at a child-care center in Imperial, Mo., found an agency that promised to withdraw money every month from her bank account to repay her creditors. She signed up.

Advertisement - Article continues below

Several months later, Bridges was still getting calls from her creditors. When she contacted the agency, she was told not to worry. But she checked her balances with her creditors anyway -- and saw that her debt hadn't decreased.

At that point, a friend recommended she call ClearPoint Financial Solutions, another agency. This time, she checked with the Better Business Bureau to make sure ClearPoint was legit. It was. A ClearPoint counselor was able to talk to her creditors, explain what happened and work out a payment plan. But Bridges still lost the more than $2,000 the bogus firm withdrew from her checking account.

With consumer debt at sky-high levels, such stories are becoming all too common. Two prevalent schemes involve companies that claim to be credit-counseling agencies and firms that say they are "debt settlement" organizations. A legitimate credit-counseling agency will educate you about budgeting and how to use credit, as well as help you set up a debt-management plan if you need one. A debt-settlement firm merely offers to negotiate with your creditors. But bogus companies take your money and run.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

Since 2001, the Federal Trade Commission has sued 14 firms that claimed to be credit-counseling agencies or debt-settlement firms but allegedly were neither. Last fall, as a result of one of the suits, a record $12.7 million was returned to 287,000 victims.

In a related scam, often hawked in radio ads, firms claim to be able to "repair" your credit record or make your credit score go up virtually overnight. "Steer clear of a credit-repair firm that claims it can take accurate, negative information off your credit report," says Lynne Strang, vice-president of the American Financial Services Association, the trade association for the consumer credit industry. "They can't." If your credit score has been hurt by inaccurate information, you can alert the credit-reporting agency on your own.

Is it legit? Once you get in the door, ask about fees. If the credit counselor won't talk about what the agency charges, walk away. According to the National Foundation for Credit Counseling, the initial counseling session should be free or cost very little -- $15 or so. If, after a 60- to 90-minute initial consultation, you sign up for a one-time debt-management plan, the average fee is $28. If you enter an extended debt-management program, you may end up paying about $23 a month.

Advertisement - Article continues below

If the agency tells you to stop paying your creditors, that's a bad sign -- if you stop paying your bills, that puts your credit rating at risk.

Also beware of agencies that pressure you to sign up for a debt-management program. Some agencies focus on such programs because they're paid by the creditors to sign up clients.

INFORMATION TO ACT ON

Three Easy Steps to Find a Good Credit Counselor

1. Get in touch with one of the organizations that help vet credit-counseling firms: the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies. Only legitimate credit-counseling firms can join either organization.

2. Run the agency's name by your local Better Business Bureau to see whether it's accredited before you hand over any money or financial information to a credit-counseling service.

3. Then check for complaints against the organization and whether they were resolved.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Banks Canceling Credit Cards, Cutting Limits
credit & debt

Banks Canceling Credit Cards, Cutting Limits

If you haven’t used a card in awhile, make a small purchase with it to keep it open. It’s good for your credit score.
June 4, 2020
Milliennials Face Their Second Recession
credit & debt

Milliennials Face Their Second Recession

Forty percent of millennials say the pandemic will likely cause them to delay payments on their debts. Does that include you? Time to take action.
June 4, 2020
When Savings Bonds Make Sense
credit & debt

When Savings Bonds Make Sense

Series I savings bonds are safe options, but don’t go all in.
June 3, 2020
8 Money-Smart Ways to Spend Your Tax Refund
tax refunds

8 Money-Smart Ways to Spend Your Tax Refund

Since this year's tax deadline was pushed back to July 15, many people haven't filed their tax return yet. That also means there are a lot of tax refu…
June 2, 2020