Consumers
CREDIT COUNSELING
Red Flags and Cautions
- Big upfront fees. While set-up fees are common practice, avoid paying unnecessarily hefty fees by comparing prices and services.
- Missing or Diverted Payments. Some companies may divert your first month's payments as a fee, instead of making payments to your creditors. This could result in missed payments and hurt your credit rating so get the details on how much and when payments will be made to your creditors.
- Unrealistic Promises. Managed payment plans involve methodically paying off your loans. Don't believe false promises of wiping out your debt for little or no money, without hurting your credit rating.
- No Accreditation. While not a guarantee of legitimacy, accreditation by the National Foundation for Credit Counseling and/or Association of Independent Consumer Credit Counseling Agencies indicates the credit counseling agency meets specific standards for free or low-cost confidential services.
According to the National Consumer Law Center and Consumer Federation of America, an estimated nine million Americans have contact with a consumer credit counseling agency each year. The numbers are likely to grow under requirements of new federal bankruptcy laws.
Considering the five-fold increase in complaints against credit counselors nationwide reported by the Better Business Bureau between 1998 and 2002, consumers will want to be careful in obtaining credit counseling services.
In California, the state Department of Corporations, oversees credit counseling agencies. The department's website offers information for checking on your credit counseling agency.
Here are some resources to help you get started in researching credit counseling agencies and what you should consider before entering into an agreement: