What are your options when the gap between your income and your bill payments has become so big you've given up hope of them ever meeting again? It's estimated that nine million consumers in that situation contact credit counselors each year.
They want to get a handle on their debt and, in some cases, consolidate and reduce credit card payments and lower interest charges through what is known as a debt-management plan (DMP).
While finding a credit-counseling agency may be easy, finding a reputable one that has your best interest at heart isn't always so. The U.S. Council of Better Business Bureaus (BBB) says it received 1,286 complaints about credit-counseling services nationwide in 2005, up from 404 in 2000. The IRS (Internal Revenue Service) currently is investigating agencies for broad abuses of nonprofit status. And in March 2005, the Federal Trade Commission (FTC) announced settlements with three debt service companies that had to pay a total of $6 million in consumer redress.
Given the horror stories and recent scandals, how do you know which credit-counseling agencies you can trust?
Despite recent warnings about unscrupulous credit counselors out to make a quick buck, there are many legitimate organizations that, together, have helped millions of consumers get back on their feet.
From the 1960s, credit counseling was provided mainly through a network of community-based, social service-oriented agencies operating under the name Consumer Credit Counseling Service (CCCS). Staff conducted typically hour-long face-to-face counseling sessions, going over a client's income and expenses, presenting options for dealing with debt, and providing money management information and educational materials.
In the mid-1990s, these neighborhood offices started losing ground to a new breed of credit counselor. For the most part, the new agencies focused on phone and Internet counseling and employed a more business-oriented approach to attracting clients, improving efficiencies, and streamlining the DMP process.
While some of the new agencies have proven to be honest and consumer-friendly, others have become known as "DMP-mills" for their singular focus on the revenue-generating debt-management plan. Not only did they dispense with the education portion of the counseling process as a way to cut costs, some have been accused of charging hefty fees, pushing a debt-management plan even when inappropriate, and even failing to distribute payments to creditors.
There are many of these unethical agencies out there just hoping you'll call. The good news is that you can avoid them by knowing what to look for in a credit-counseling agency.
Although the government publishes a list of credit counselors it approves to provide services under the new bankruptcy legislation, those agencies are required to meet only the minimum standards established by the U.S. Trustee Program. Ultimately, you'll have to rely on your own shopping skills and detective work--including recommendations from people at your credit union--to select the best credit-counseling agency to work with. "Any agency you choose should be consumer-focused, low-cost, and aspire to high standards [of service]," advises Jessica Cecere, the president of CCCS of Palm Beach County/Treasure Coast of Florida.