The Cutting Edge: Avoiding Credit Consolidation Scams

Don't get swindled trying to settle your debts

greenlightbulb1Scam artists prey on desperation. With the unemployment rate spiraling to its highest level in more than three decades, that desperation becomes more palpable as households scramble to get their finances in order. If you haven’t been disciplined enough to create a workable budget to get out of debt, or if you feel like you’re in over your head, a debt counselor or consolidation program may be right for you. But if you’re considering entrusting your finances to a complete stranger, exercising diligence is imperative.

The typical consumer has access to approximately $19,000 on all credit cards combined, according to Fair Isaac Corp. When finances are tight, 59% say they pay their credit card bills last, according to a survey by Creditcards.com. For a cash-strapped household, it may mean a lack of funds left to pay the mounting revolving debt. “The average person that comes to us for help has seven credit cards,” says Gail Cunningham, spokesperson for the National Foundation for Credit Counseling.

Here’s what you need to consider when seeking out a credit counselor or looking into a company to help you with your debt:

DO YOUR HOMEWORK:
Check out the company’s creditability with the Better Business Bureau (BBB) or your state’s attorney general’s office. Don’t be fooled by the non-profit designation either, because in this day and age, there’s no guarantee that the designation means the services are free, affordable, or even legitimate. The Federal Trade Commission has exposed so-called non-profits — such as the National Consumer Council and AmeriDebt – that were funneling money to for-profit companies. When checking out a company with the BBB, Cunningham urges consumers to be on the lookout for “unresolved” complaints. She says be sure to ask, “how did the company respond to the complaints filed? were they resolved in a way that satisfied the customer or the BBB?”

KNOW THE FEES: Some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make voluntary contributions that can cause more debt, so be on the lookout for this too, says the FTC. Be suspicious if you’re asked to pay up front and in cash. “One of [the NFCC] membership standards is that no fee can be assessed prior to delivery of service,” Cunningham says. Review the fee assessment thoroughly. “There are a lot of scam artists charging money for services [that are] free,” says Kathleen Day, spokesperson for the Center for Responsible Lending. Day recommends you “get in writing what [the agency is] going to charge.”

GET IN-PERSON COUNSELING: Credit counselors can offer services through local offices, the Internet or on the telephone but, aim for in-person counseling, according to the FTC. When entrusting someone with your livelihood, it’s important to get a clear sense of who you’re working with. To find a reputable agency look into local universities, military bases, credit unions, housing

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