money and discount it back to the creditors usually at a rate that averages 12%-15%. To me, that says collection agency–someone is getting paid a commission to collect money and disperse it to the creditors. They are really looking after the creditors’ best interest, not the consumer’s,” Hibbs notes, adding that in most cases, credit counseling services are doing what consumers can really do on their own.
“I tell consumers to stay away from these services because if you owe X amount of dollars and the counselor sets you up on a repayment program, there is no incentive to get you in and out of the program in a hurry,” counsels Hibbs. “They will try to keep you in for an average of three to five years because they are collecting a commission.” Consumers also need to be aware that a tag line will be put on the credit report that states “account in credit counseling,” which is seen as a negative factor.
Hibbs conducted a survey of major lenders in the country, including major banks and auto lenders, who admitted that such a tag line would keep them from loaning money to that individual. “When you’re dealing with independent services, you really don’t have any idea what they’re doing with your money, how they’re handling it, or even if they’re paying your debt. There’s nothing that guarantees you anything, so my advice is to stay away from them,” Hibbs warns.
Brown has learned her lesson after losing her initial payment and trying to reestablish her credit. “I signed the contract in haste. In my need to satisfy an immediate desire, I didn’t make an intelligent decision. A five-year-old would have known better,” she admits. Brown advises consumers to take their time, never sign and send a contract within the same day of receiving it, and not to send it back by fax or by overnight delivery. “Take the time to understand what you are signing,” she says.
Before signing away your debt to a credit service, consider these suggestions from Janice Grassi, executive director of the Better Business Bureau in Long Island, New York:
Find out if the service is truly trying to consolidate your debt, or if they are actually trying to offer you a loan. A loan could get you even deeper in debt if the interest rate is higher than what you were paying.
A good service should offer budget counseling and debt repayment as part of the package. Get names, titles and phone numbers of everyone who is supposed to work with you, and ask specific questions.
Watch out for advance and upfront fees, and look for hidden charges within the contract. Review the contract carefully, and if you don’t understand the language, ask for clarification–in writing, if possible.
In many states, the service should have a nonprofit status. Your creditors may not deal with the service otherwise, and they may not be looking out for your interest.
Check out the company with the Attorney General’s office and the Better Business Bureau to