Any search for “credit counseling offers” on the internet will yield a lot of information about counseling services, credit repair companies and do-it-yourself plans. A debt counseling service negotiates lower payments with your creditors, then makes negotiated payments on your behalf each month.

Credit counseling offers are everywhere promising to help you out of debt, however some debt counselors do more harm than good. The very significant rise in consumer debt in the 1990s gave birth to literally hundreds of debt repair agencies and debt counseling grew into a $7 billion plus industry comprised of both legitimate and fraudulent entities. This article explains the business generally and offers some tips to assist you to avoid the fraud artists who have slick advertising methods to entrap you in their schemes.

Credit counseling organizations generally offer credit repair services at little or no cost because credit counseling organizations are typically not-for-profit (NFP) and are often funded by the creditors themselves, government grants or voluntary support from member agencies. The best of these debt counseling agencies offer significant help to people who are struggling with their debt load to get back on their feet. However, the least reputable organizations can disappear with your money and even what’s left of your credit rating! Between the two extremes exists a host of companies that may or may not provide any significant benefit to debtors.

There is a general feeling that debtors should be wary of not-for-profit (NFP) counseling organizations because many of those organizations are set up by creditors and it’s suspected they may discourage direct client-creditor negotiations and in the process unobtrusively impede the client’s speed of debt repayment which has the effect of increasing overall interest charges paid in the long run.

If you opt to employ a credit counseling agency it is highly recommended that you carefully investigate the service agency beforehand. There are some warning signs you should be aware of to either avoid falling into the hands of illegitimate operators.

  • Lack of Accreditation
    Accredited and legitimate credit counseling agencies are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Membership in either or both associations should be one of the first things you look for.
    National Foundation for Credit Counseling
    ( )
    Assn. of Independent Consumer Credit Counseling Agencies
    ( )

  • Large Advance Fees
    Legitimate debt counseling agencies generally require set-up fee of $10 – $20 in advance. Unless you are also to receive substantial other service such as personal financial coaching in the package, large up-front fees should be a tip off to take another look at the agency at very least.

  • Too-Good-To-Be-True Promises
    Legitimate credit counseling services assist you to repay obligations in an organized, consolidated and timely manner, often at lower interest rates! Furthermore they will also tell you up front that there may be an effect on both your credit rating as well as your ability to obtain new credit, at least in the short term. Any agency that claims they can negotiate settlements of your debts for little or no money, with no ill effect of your credit rating, is making patently false claims and should be avoided entirely! Remember, if it sounds too good to be true … it probably is!

  • Delayed or Missing Payments
    Make sure you are given clear information and schedules regarding how much of each monthly payment is being applied to debt repayment and on what day of the month those payments will be made. It is wise to require that information in writing for your records. Some agencies will retain your first months’ payments as their fee rather than applying it to your debt repayment. This practice has the potential to damage your credit rating further since it will show up in the bureaus as a missed or late payment on your part … which is exactly the ‘reputation’ your are trying to reverse by engaging in the process of orderly and managed debt repayment in the first place!

Be thorough in your search and find a counseling organization that will make sure you are participating fully in the whole process and are completely aware of what is being done on your behalf. The legitimate professionals keep everything in the open, keep you informed, and provide a service that achieves your debt reduction goals in an effective and confidential manner. Those are the agencies you want to deal with!

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