Debt Counselling Service : do's and dont's
Debt is a complex problem and you should be wary of any debt counselling service that offers an instant solution that seems too good to be true. In the murky world of debt counselling there really is no such thing as 'free' advice from a commercial firm.
If you're looking for low cost, independent advice you'd be best off trying your local credit union or housing authority. Their welfare officer can point you in the right direction or refer you to a reliable credit counsellor. Universities and military bases also often offer non profit credit counselling services and even your bank manager or local consumer protection agency can provide valuable advice.
If you've decided to pay for a credit counselling service, do your own research. Check with the Better Business Bureau for complaints against the company and with the state attorney general's office to see if it has any legal cases pending against the company.
Ask if your information and contact details will be kept confidential. Many companies sell client details to anyone that will pay for them meaning that you will be barraged with calls and offers of loans and other financial products when you least need it.
Demand a written contract with the name and address of the company; details of the services they will perform; any guarantees they offer; and a breakdown of the repayment plan, fees, costs and interest charged. They are legally obliged to give you this information. You have three days after signing the contract to cancel it.
Look for a debt counselling service based in a state with good consumer protection laws. Should something go wrong you will have a better chance at redressing the situation. California , Connecticut , Massachusetts and Oregon have some of the best consumer protection laws while Florida , Louisiana and Mississippi have some of the worst. In Maryland all debt management companies must be non-profit organizations recognized by the IRS.
Check if your state has a Credit Repair Organization Act which regulates businesses offering to repair your credit record. The act may limit the amounts you can be charged for services that you could have done yourself. Other additional state laws may require firms to be licensed or bonded.
Avoid companies that charge up-front application fees. Reputable firms should offer a free consultation to discuss your financial problems before recommending any debt management solution . Credit repair organizations cannot charge any fee until the services they have offered are provided. If they ask for up-front payment just walk away.
Don't trust any company that recommends that you shouldn't contact a credit bureau directly. Your creditors can verify a debt management company's claims that you have to make a payment to the credit counselling service before being accepted on a debt management program and/or how long you need to be on that program before the benefits of reduced interest rates or fees will kick in.
Avoid any debt counseling service that offers to remove accurate information on bankruptcy, bad loans, or court judgements from your credit report. This is legally impossible. Bankruptcy records are kept for ten years, information on judgements and lawsuits for seven.
Avoid any company offering you a new credit identity. Applying for credit using an Employer Identification Number and a different address is a federal and state felony.
Avoid any company that refuses to give you free information about their services, or asks for personal banking and credit details before you commit to using their services.