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Be wary of offers to reduce your debt

Be wary of offers to reduce your debt

(Scams, Credit and Money Matters) Permanent link

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.

 credit debtWith 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 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.

Posted by AGO Blog Moderator at 03/12/2009 06:35:36 PM | 

Some people wonder if bankruptcy is a viable solution. Bankruptcy is something you should avoid at all costs, if it is at all possible, be it chapter 7 or 11. If you can get debt consolidation and or mortgage loan modification in lieu of filing for protection, you should do it. Bankruptcy stays on your record for 7 to 10 years, and in so many situations you have to disclose it, and failing to disclose can be a crime. Anything would be better, even getting installment loans is far better than filing for bankruptcy. [BLOG MODERATOR'S RESPONSE: A link to a commercial Web site was removed from this comment.]
Posted by: Bankruptcy ( Email ) at 4/26/2009 10:21 PM

What, if anything is being done by the AG office to counteract the blatant credit card rate increases to 30% (3 X original rate) when an overdraft or late is recorded, with no real or viable way to get that reduced.
Bbank of America has done so, with promise that they will review a request after six months. Now, after perfect payments (at 30%), they say that because i have a heavy load of credit, not enough income, they cannot reduce rate - eventhough payments have been on time. they suggest CCC and BK and other extreme actuions, when a simple rate/payment reduction would solve the problem.
Is that not counter to logic, truly ramming it to consumers, being very inflexible and adding fuel to the fire, that if they do not reduce rate, it could make things worst. i am not asking to get down to the original 11%, but for something lower than 30%.
Posted by: escandar ( Email ) at 5/1/2009 10:33 AM

I've addressed Escandar's question in our May 12, 2009, blog post: "Congress addresses drastic credit card interest hikes."

Most banks are regulated by the feds -- not the states.
Posted by: Kristin Alexander ( Email | Visit ) at 5/14/2009 3:58 PM

You bit about Debt Negotiation, I know a person at work that managed to buy a house, get loans then after having all of this, file for an IVA to reduce massivly the outgoings on the loans she took before! I asked her what about future credit, she said it will only be on her credit file for 5 years and she does not need loans as has a house, car and so on...

I am not too sure if you have an IVA in the USA but I assume there are ways people do this also but I find it scary.. [BLOG MODERATOR'S COMMENT: A link to a commercial Web site was removed from this comment.]

I just thought I would drop a post as I found this when searchin for ways to increase credit score. Thanks for the info.
Posted by: Ted ( Email ) at 6/13/2009 11:36 AM

I have always wondered this for example,

If someone is looking at ways to increase credit score's by removing certain items how this will effect your future credit, your blog touches on this subject but I also wonder if when for example I personaly remove for example a default notice from my credit file, will there be some "hidden" black mark? [BLOG MODERATOR'S COMMENT: A link to a commercial Web site was removed from this comment.]
Posted by: Tom ( Email ) at 6/13/2009 11:42 AM

Since both Tom and Ted included a link to the same foreign, commercial Web site in their comments and wrote in at almost the same time, I strongly suspect their inquiries may be comment spam. But just in case, here’s my 2 cents:

First, you can’t “remove” anything from your credit file – and you shouldn’t believe companies who promise they can do so. If you find errors or mistakes, federal law gives you the right to have them corrected – free of charge. Assuming the information is accurate, however, it will remain there for a set period of time. Typically, negative information can be reported for up to seven years. Bankruptcies can stay on your report for up to 10 years.

The term IVA appears to be specific to the UK. So I’m not familiar with the concept. Readers? - Kristin
Posted by: Kristin Alexander, Blog Moderator ( Email ) at 6/15/2009 2:26 PM

It is interesting how the state attorney general thinks that the massive credit card problem and consumer debts underscore sense of urgency the government has. Negotiations with debt consolidation, loan modification and mortgage restructuring companies may be pending but our sense of urgency in acting and speaking with these companies should not be overlooked.
Posted by: Travis ( Email ) at 12/22/2009 9:07 AM

Believe it or not, the IRS is not completely averse to negotiations when it comes to tax debt repayment. In fact, the most successful reduce my tax debt plans typically involve some sort of compromise with the IRS. The bottom line is that if you can't pay your tax liability in full, you do have options. Consulting with a professional debt service or a tax professional can help you explore all of the alternatives to get you out of tax debt for good. Consider the following ways you can reduce tax debt.

David James
Posted by: debt relief ( Email ) at 2/17/2010 11:29 AM

Unfortunately, most people just don't do their homework. There are some very good services that truly do help people resolve their credit issues. For every good company, there are probably a couple bad ones. Consumers don't realize this is a big business these day's and companies will take advantage of this. Everyone must take their time,research each company thoroughly and please do not sign anything until you are completely sure of all the terms and services are fully explained and understood.
Posted by: Mike ( Email ) at 6/29/2011 4:54 PM

Unfortunately, most people are not well informed. They have not decided which way is better, consolidation or bankruptcy
Posted by: Rob Seltman ( Email ) at 3/27/2013 4:21 AM

you have a co debtor on a personal debt. If you file for Chapter 7 bankruptcy, your co debtor will still be on the hook -- and your creditor will undoubtedly go after the co debtor for payment.
Posted by: Bankruptcy help ( Email ) at 10/22/2013 12:42 PM

Yes, you were able to present yourself in a good manner. In this post, I think you can be of help to those people and companies that are in that denial situation.
Posted by: Bankruptcy Attorney San Diego ( Email ) at 8/4/2014 1:01 AM

Looking at this post reminds me of my previous roommate! He continually kept talking about this. I most certainly will
send this article to him. Fairly certain he’s going to have a good read. Many thanks for sharing!
Posted by: Bankruptcy Attorney San Diego ( Email ) at 8/9/2014 2:10 AM

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