Last week, I answered a call during KHQ’s Help Center from a man who paid $2,000 to a company that promised to help lower his debt. The business reportedly claimed to have a “secret method that the government doesn’t want you to know about.” While a come-on like that should make you roll your eyes, some other businesses that are more subtle in their approach are just as worthless. You could lose hundreds of dollars in fees and find yourself in worse financial shape.
KIRO TV reporter Amy Clancy’s investigative story about a Tacoma business that offers consumers the opportunity to lower their credit card interest rates is worth watching. While I can’t personally comment on the legality of the business’ practices, the report does raise concerns about whether representatives were upfront with consumers about their services.
With Americans owing $963 billion in credit card debt and the economy in decline, many folks are looking for a way out of their debt woes. Washington State Attorney General Rob McKenna moderated the panel, “The credit card crisis: the next shoe to drop?” last week at the annual spring meeting of the National Association of Attorneys General.
“The scale of this crisis underscores the urgency of our work to assist borrowers buried in personal debt,” McKenna said. “State attorneys general lead the way, negotiating settlements with sub-prime lenders and persuading home mortgage companies to reduce interest rates for millions of Americans.”
If you are struggling with credit card debt, there are steps you can take to avoid bankruptcy, according to The Federal Trade Commission’s guide, “Knee Deep in Debt.” And if you’re looking for help, it’s important to understand the differences between debt consolidation, debt negotiation and bogus debt elimination plans.
A credit counseling agency may recommend that you enroll in a debt management plan that includes consolidation. You deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees if you’re working with a reputable program, but it can still take several years to complete the program. Be aware that just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or affordable.
Debt negotiation programs claim they can work out a deal with your creditors to lower the amount you owe for an upfront fee. These programs can be risky and may have a negative impact on your credit report and, in turn, your ability to be approved for new credit. You should be skeptical of any business that asks for cash up front.
You should run from anyone who promises they can repair a bad credit report or that quickly recommends bankruptcy as a solution.
The U.S. Department of Justice’s U.S. Trustee Program provides a list of government-approved credit counseling agencies. The National Foundation for Consumer Counseling provides a list of member agencies online at www.nfcc.org or call 1-800-388-2227 for 24-hour automated office listings.
Think carefully before sending money to a credit counseling or repair program that doesn’t have an office in your community. Compare a couple of services and get a feel for how they operate.