| Consumers guide to credit counseling (credit counseling)
|
| ACS provides free articles on credit counseling, debt consolidation loans and refinance mortgage. |
Consumers guide to credit counseling
[ Bookmark this page! ] [ get HTML Version ]
Is credit counseling right for you
Sometimes people just owe too much. Charge this, pay for that later.
There's not a lot necessarily wrong with that, but anyone will tell you that if your debt payments begin to get out of hand -- or that paying the minimum each month on all of your credit accounts is all you can afford -- then usually it takes just one out-of-your-control event to keep you from paying your bills on time... Read credit counseling article
Credit Counseling or Bankruptcy - Soon You May Have No Choice
If you are looking for a quick debt consolidation than you should be alarmed with the ongoing legislation to severely limit the ability to file bankruptcy in cases where people have the ability to pay.
If not bankruptcy then what? The credit counseling ... which pitfalls millions of unfortunate Americans are already facing.
If the pending bankruptcy bill is enacted, the new l... Read credit counseling article
Consumers guide to credit counseling
Randy is deeply in debt and desperate. He's seen all the television ads from credit counseling services that promise to help him, and he's also been approached by a company that assures him it can painlessly make his debts go away. Is this, he asked me in an e-mail, too good to be true? Often, the answer is yes.
Randy's thinking of entering a world that's fraught with fraud, misrepresentation and controversy. Debt counseling has become a $7 billion industry, but not all the players are legitimate.
The best credit counseling can help people who are behind on their debts get back on their feet. Fly-by-night outfits can disappear with your money, and what remains of your credit rating. In between the two are a whole fleet of operators who may or may not leave you better off than you are now.
The morphing world of credit counseling
A decade ago the industry was dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind. Today you can find the Consumer Credit Counseling Service in just about any city.
But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names.
Some do a good job of negotiating repayment plans. Others charge fat upfront fees, pay their executives even fatter salaries and pocket much of the money that could be going to pay off creditors. An increasing number target people who aren't even late on their payments, but who are simply disgruntled about their interest rates.
The worst aren't credit counselors at all. Usually billing themselves as specialists in debt settlement, they promise to help you get rid of your debts for pennies on the dollar -- after you pay an upfront fee that can be $3,000 or more. Typically, by the time I hear about these companies, they've already absconded with people's cash, disconnected their phones and set up shop somewhere new with a different name.
Who needs credit counseling?
Obviously, all these outfits are finding plenty of eager customers. Americans' debt loads have been running at record levels, and bankruptcies are high.
It's hard to get an accurate bead on how many people signed up for debt repayment plans through credit-counseling services. Of those in debt repayment plans, said Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counseling, about half were expected to successfully complete their plans. The other half were expected to drop out, with some of those filing for bankruptcy.
Typically, counseling services negotiate lower payments with credit-card companies and other lenders, then make the payments using a check or electronic funds transfer sent to them by the consumer each month.
Most of the counseling services' fees are paid by the lenders themselves, which send back to the services a portion of the payments received. This has led some critics to charge that credit counseling is just a tool of the lending industry.
The payment system, known as fair share, has certainly encouraged the growth of credit counseling services. And some agencies, driven by competition, are now openly courting consumers who haven't fallen behind on their debts by promising lower interest rates. This development has angered credit-card companies and often hurts consumers, who may find out too late that such plans can hurt their credit ratings and are often unnecessary.
Are you in danger?
So let's make this clear: If you're able to pay your bills and are current on all your accounts, you almost certainly don't need credit counseling. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking -- or threatening to move your account elsewhere.
Here's when you might think about full-scale credit counseling:
You can't pay the minimums on your credit cards.
You're consistently late paying one or more of your regular bills.
You're being hounded by creditors and collection agencies.
Your efforts to work out reasonable repayment plans with your creditors have failed.
Be warned: If you're too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that's true, bankruptcy may be the best of bad options.
Your payments also shouldn't stretch on for years. The typical plan takes two to four years to complete. Responsible credit counselors say bankruptcy is usually the better option if the repayment would take more than five years.
What to watch out for
Once you've decided you want credit counseling, you should investigate the company or service carefully before signing up. Red flags to avoid include:
Big upfront fees. Consumer Credit Counseling Services typically charge a $10 set-up fee. If you're paying a lot more, you may be the one who's getting set up, unless you're getting extensive and personal money coaching that could justify the fee.
No accreditation. Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
Delayed or missing payments. Some companies pocket your first months' payments as a fee, rather than passing the money on to your creditors. Missing payments can hurt your credit rating. Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.
Unrealistic promises. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and ability to obtain new credit.
What counseling can do to your credit
Here's another controversial topic. You may have heard that credit counseling will trash your credit report or even that it's worse than bankruptcy. Neither is really true.
Credit counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.
Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won't do business with you for the 10 years the bankruptcy remains on your file.
What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.
First USA, the credit-card giant, reports its customers as delinquent on their bills until they make three consecutive payments of the new minimums negotiated by their credit services, said spokesman David Webster. Citibank, by contrast, simply adds a note to the credit bureaus' files that the customer is enrolled in credit counseling.
Being reported as late or delinquent can certainly hurt your credit score, the three-digit number widely used by lenders to determine creditworthiness. A simple notation about credit counseling probably won't. The credit score formula used by most lenders, known as FICO, now ignores any reference to credit counseling that may be in your file, said Craig Watts, spokesman for FICO creator Fair Isaac & Co.
Even some lenders that were traditionally suspicious of credit counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans, said mortgage broker Allen Bond, president of the California Association of Mortgage Brokers' Southern California chapter.
Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company's eyes by enrolling in -- and sticking with -- a debt repayment plan.
"We always viewed that as a positive," said Citibank spokeswoman Maria Mendler. "We've seen that for people who enter these programs, there's a significantly lower rate of default."
That said, there are still some lenders who refuse to deal with anyone who has enrolled in credit counseling. And if you fell behind on your payments before you entered credit counseling, you'll find those late payments will still affect your credit score even after you've paid off your debts.
As you can see, there are no easy answers for people who get in trouble with credit. Once you're there, make sure to evaluate your options carefully, and don't make a bad situation worse.
Bookmark this page | Search this site | E-mail to a Friend
How you can pick a $50 credit counselor
Soon, debt-laden consumers seeking credit counseling will have one more decision to make: whether to seek out the real thing or settle for a "traffic school" version that will allow them to file for bankruptcy.
Experts predict a fleet of counselors will spring up to meet demand from the roughly 1.5 million Americans who, starting Oct. 17, will be required to complete 90 minutes of credit counseling before they can file for bankruptcy. That's on top of the 3 million or so people who contact credit counselors annually now, hoping for help with their finances or enrollment in debt-management plans to avoid bankruptcy.
The U.S. Department of Justice, which drafted the guidelines for implementing this aspect of bankruptcy reform, has already received more than 1,000 applications from agencies wanting to provide this counseling, for which they will be allowed to charge up to $50 a person. Find a loan that's right for you at the Loan Center
The Justice Department says the sessions must include: An analysis of the client's current financial condition (translated: how deep a hole you're in);
A discussion of the factors that caused this condition (translated: what got you into the hole in the first place);
Guidance on developing a plan to respond to the problems without incurring negative amortization of debt (translated, near as I can figure: how to keep the hole from getting deeper);
A discussion of all alternatives for dealing with the situation (translated: paying your debts, not paying your debts, paying some but not all of your debts, filing for bankruptcy).
$50 x 1.5 million filers = major money Agencies that want to offer this counseling must be organized as nonprofits. But nothing prevents them from seeing the surge of potential clients as one heck of a business opportunity.
"Fifty bucks times 1.5 million people," noted Sam Gerdano, head of the nonpartisan American Bankruptcy Institute, "is a lot of money."
The economics of credit counseling make it likely many of these providers will offer large group sessions, telephone counseling and consultations via the Internet rather than the face-to-face sessions offered by traditional credit-counseling agencies, Gerdano said.
Hence the comparison to traffic schools, where those who want a traffic ticket erased for insurance purposes spend a few hours in a huge classroom or in front of a computer. People who pay attention might learn a thing or two, but it's questionable whether the experience makes them better drivers.
The pending credit-counseling situation disturbs many consumer advocates and the old-school credit counselors, who emphasize personalized counseling and want to continue doing so (and who, of course, will be competing with the new breed of mass-audience counselors).
"The intent of the (bankruptcy reform) legislation is to change consumers' attitudes and behaviors," said Susan Keating, president and CEO of the nonprofit National Foundation for Credit Counseling, the oldest organization of credit-counseling agencies. "If the result is drive-by counseling and education, we will not have fulfilled the intent of this particular legislation."
Keating acknowledges, though, that $50 won't cover the costs of providing one-on-one sessions for the new influx of bankruptcy hopefuls. Currently, most NFCC agency budgets come from a share of the money that clients pay to credit card companies and other lenders through debt-repayment programs. That's not a model that should really work with this new gang of borrowers, most of whom are too far gone to pay their bills (and some who will have trouble scraping together the $50).
Keating hopes that the credit card companies and lenders providing most of credit counselors' funding will kick in more money. Her agencies won't ignore telephone and Internet counseling for clients who prefer that route; many already provide these services.
But advocates like Consumer Federation of America and Consumer Action worry that some counselors will take advantage of the situation to skim more cash from vulnerable debtors.
They're most concerned about the heavily advertised, new-school credit counselors who, in the past, have skipped education and counseling in favor of 20-minute (or shorter) sessions that shoehorn consumers into credit card payoff plans.
These are the outfits that have been generating most of the bad press lately. Regulators have shut down a handful, including one-time hotshot AmeriDebt, accusing them of deceiving consumers and fronting as nonprofits, while funneling borrowers to their very-much-for-profit affiliates. (For details, see "Feds sue, say debt counselor duped debtors.)
The IRS finally got into the act, as well. IRS Commissioner Mark Everson says he has half of the credit-counseling agencies under audit. His agency has yanked nonprofit status from companies representing 20% of the industry.
But that still leaves plenty of bad guys out there. The consumer advocates aren't confident that the Justice Department will screen them out. The advocates are especially worried that unethical counselors will coerce bankruptcy bound debtors into impractical repayment plans, just to collect additional fees from creditors.
Top rated articles for credit counseling
1. Improve Bad Credit
Your debts are getting out of control and you apply for a loan to pay them all off in one go. However, your loan application gets rejected because of bad credit. You are too risky a proposition to loa... Read credit counseling article
2. Credit counseling - Recovering from Bad Credit
I have seen the advertisements and cringe - "Let us fix your damaged credit", "Don't file bankruptcy, let us help". I am sure you have not only seen them but if you have been in financial trouble you ... Read credit counseling article
3. Working with a credit counselor
Worried about debt collectors? Can't seem to develop a workable budget? Unable to save for retirement? If these sound familiar, you may want to consider a credit counseling agency.
Here's ... Read credit counseling article
4. Credit Scoring - Truth Revealed
Credit scoring is system that most creditors and business use to determine if to issue credit cards or loans to an individual. When you apply for credit, creditors reserve the right to administer a fu... Read credit counseling article
5. Credit counseling - When you need help
Credit counseling is a viable option for those who are feeling the stress of being overwhelmed by debt. Credit counseling primarily offers assistance with working out a credit and debt repayment plan ... Read credit counseling article
6. Credit Counseling and Debt Management Plans
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?
You're... Read credit counseling article
7. Bankruptcy Credit Counseling - What the Bankruptcy Law states
Bankruptcy credit counseling is a requirement of the new bankruptcy law effective October 17, 2005. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires court approved bankrupt... Read credit counseling article
8. Choosing a Credit Counseling Service
Are you way over your head in debt? For many struggling to pay off their debts, self-help sometimes is not a viable option. Here are some pointers for choosing the best credit counseling service.
... Read credit counseling article
9. Credit counseling - Preparation and procedures
Prepare for credit counseling to save time, and help your counselor give you the best advice. Here are the basic steps to prepare for credit counseling:
Make the initial contact
Prepa... Read credit counseling article
10. How Your Credit Score is Calculated
Understanding how your credit score is determined will make you enable you to practice good credit, thus keeping your score good. Please note that your credit score is computed by analyzing the ''whol... Read credit counseling article
Credit Counseling and Debt consolidation services in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Consumers guide to credit counseling
Debt consolidation services in Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
Debt consolidation services in Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin and Wyoming.
Add website or submit URL link of your site to 1000 free directory