Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

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Debt Relief and Credit Counseling 

Once you've obtained credit, it's easy to be overwhelmed. You may overspend, become ill or lose your job, making it difficult to keep up with your bills.  If you are struggling with debt, there are steps you can take to avoid bankruptcy.

Consult with a legitimate credit counselor who will help you develop a personalized money-management plan.

The U.S. Department of Justice’s U.S. Trustee Program provides a list of government-approved credit counseling agencies on its website.

The National Foundation for Consumer Counseling provides a list of member agencies online at www.nfcc.org or call 1-800-388-2227 for a 24-hour automated message with office listings.

Think carefully before sending money to a credit counseling or repair program that doesn’t have an office in your community. Shop around. Compare a couple of services and get a feel for how they operate.  The credit counselor should spend at least 20 to 30 minutes with you in order to get a complete picture of your finances. Also, be aware that just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or affordable.

Debt consolidation programs offered by legitimate organizations can be helpful to some consumers. These programs combine your existing debts into a single loan with a lower interest rate.  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.

Bankruptcy should be your last resort for financial recovery. Federal law requires that you must receive credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.

Cautions about Credit Repair Offers

Some consumers turn to companies which claim they can fix credit problems.  These companies, sometimes called "credit repair clinics," often charge high fees for doing the same things consumers can do on their own.  They also sometimes make misleading promises to consumers, such as promising to remove a bankruptcy from their credit report, and promising a “new credit identity” to help hide a bad credit history.”  Be wary about paying a “credit repair” company up front before they do any work on your behalf.  

Credit repair organizations must provide you with a copy of “Consumer Credit-File Rights Under State and Federal Law” before you sign a contract. They must also give you a written contract that clearly explains services to be performed, your obligations including all costs, how long it will take to achieve results, and any guarantees

Debt negotiation programs claim they can work out a deal with your creditors to lower the amount you owe. These programs, which sometimes call themselves “debt settlement” or “debt adjusting” 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. Additional risks exist if you are unable to save enough money to satisfy your creditors or are successfully sued and your creditors garnish your wages. Sometimes, these programs will require to you deposit money in a special account set up for the purpose of paying off your debt, as directed by the debt relief company.  Usually, you will be asked to transfer a certain amount of money into this account every month to pay off any settlement reached with your creditors. 

Recent changes to the federal Telemarketing Sales Rule prohibit companies that sell debt relief services over the phone from charging a fee before they settle or reduce your debt.  Washington law also puts limits on the fees a for-profit debt relief company can charge: the total fee for debt adjusting services can’t exceed fifteen percent of the total debt you list in the contract with the debt relief company.  This amount includes fees you are charged by a bank or other company that administers the account into which you deposit money towards payment of the debts.