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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.
For more information, contact your local
Colorado State University Extension office.
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