Online Help for Debt Relief

In February I wrote about the care one must take when deciding between credit counseling and consolidation.  Columnist Herb Weisbaum concluded in an msnbc article that credit counseling is generally a better choice.  Weisbaum argued that too many debt settlement programs advertise services they simply cannot provide without charging unreasonable fees to the debt holder.

Better to err on the side of caution.  If there are many debt settlement agencies involved in fraudulent activity or misleading marketing tactics, then better to work with a counselor and organize a plan to pay your creditors yourself.

Looking into this topic a bit further, it appears as though there are circumstances in which someone would benefit from consolidating.  In fact, depending on the amount of debt owed, it might be the better option.

In my last post, a novel visualization from Mint.com titled Help! Too Much Debt! looks at debt in three distinct categories: manageable debt, troubling debt, and impossible debt. In each phase or condition, counseling, consolidating, and declaring bankruptcy are options available to handle debt.  So what to do and in which phase?

Manageable Debt

Credit counseling is the way to go here.  Let a counselor negotiate  lower interest rates and lower monthly payments with your creditors.

Troubling Debt

Here, it appears consolidation is a good option so long as you research the consolidator and verify its reputation before hand (more on that to follow).  Consolidation combines your previous debts into one new loan and extends the time period in which you are obligated to pay, but you will pay higher interest and services fees on this new loan.

In some instances a consolidator may even negotiate a reduction in your principle amount owed through a process called “settlement”.  Again though, be careful and avoid fees from the consolidator that offset the financial relief a settlement may grant you.

Impossible Debt

Get a lawyer and talk about bankruptcy as a last resort.  First get a lawyer, a lawyer that will provide at least one free half hour of consultation.  Don’t be afraid to shop around.

Finally, as daunting as it may sound, before any of this, get on the phone with your creditors and try to negotiate lower APR, change movable APR to fixed APR, and lower monthly payments yourself.  Tell them that your next step will be counseling, consolidation, or bankruptcy if need be, and they have every reason to work with you at present time.

If credit consolidation is the option you must choose, check your consolidator’s reputation against the Better Business Bureau, the Office of Consumer Credit Commission at www.occc.state.tx.us, the Finance Commission of Texas at www.fc.state.tx.us, the Office of the Attorney General at www.oag.state.tx.us, or the Association of Settlement Companies at www.tascsite.org to learn more about the company.

Help! Too much Debt! courtesy of Mint.com.  The image URL for reposts is:

http://www.mint.com/blog/wp-content/uploads/2010/04/Debt_Help_Consolidated_Complete.jpg

Also, at the bottom of the feature found at http://www.mint.com/blog/goals/help-too-much-debt/, Mint provides the image HTML for those who want to embed this in their site or blog.

This is another example of a visualization that nicely condenses a lot of valuable information and important things to consider.

More to follow.

Here is a great visualization from wallstats.com.  Check out wallstats.com.  It is really a genius website.
I found this visualization first at http://www.mint.com/blog/finance-core/the-descent-into-credit-card-debt/.  Mint has a some great articles on using caution with credit cards and finding a credit card that works well for you.

Enjoy.

Companies are running a lot of advertising on television and radio for “debt relief” and alternatives to filing for bankruptcy.  Some of these commercials air on major networks during prime time programming.  They promote themselves by affiliating with Obama’s approval for regulatory measures and sanctions against abusive and opportunistic creditors.

Don’t accept any of these credit relief organizations at face value.  Do your homework.  But how?  What homework beyond checking with the Better Business Bureau and looking for information on one of the major search engines?

Columnist Herb Weisbaum, recently provided a thorough guideline for making sound decisions when pursuing legitimate assistance with debt relief.  His contribution appeared in this msnbc article.  http://www.msnbc.msn.com/id/18155301/

Weisbaum writes:

In the last few years, the Federal Trade Commission has sued more than dozen debt relief companies. “They simply lie to consumers,” says the FTC’s Alice Hrdy.

FTC ad IRS investigators have also found some counseling services that claim to be non-profit when they are actually a for-profit company. The non-profit pitch can make a potential client feel confident about signing up for the service. “They’re preying on the consumer’s trust,” Hrdy says.

Some of the bad apples in this industry mislead people about their charges. “They either say there are no fees involved or just a small fee,” Hrdy explains. Sometimes, they don’t mention fees at all.

Bruce, who lives near Seattle, signed up with a company that promised to lower his interest rates. He was told to send them a check for $265.

“It was my clear understanding that money was going to pay off my credit card bills,” Bruce told me. It turned out to be a “referral fee” to find him a company that would supposedly help him.

“It was a nasty experience,” Bruce says. “They basically stole my money.”

Warning: Debt settlement programs
Some companies now claim they can negotiate a one-time settlement with all of your creditors that will reduce your principal by as much as 50 to 70 percent. By doing this, they say, your monthly payments will drop dramatically.

“That is virtually impossible under any circumstances,” says Travis Plunkett, Legislative Director of the Consumer Federation of America. That’s why CFA warns consumers not to use debt settlement programs. “They are promising something they can’t deliver,” Plunkett says.

Credit counselors — a better option
Charles Helms, president of Consumer Counseling Northwest, sees a lot of people who have been burned by these phony debt relief programs. “It’s horrible,” he says. Because most of them have a large up-front fee, they’ll take anyone who can pay.

“Their goal is to get you to sign up, not to successfully complete the program,” Helms says. “So here’s someone who is financially damaged to begin with and then these companies just go out and take the last of their resources and kill any hope they have of getting out of that situation.”

With a legitimate credit counselor, there is no right answer for everyone. They sit down with you and give you a free and objective assessment of your financial situation.  At Credit Counseling Northwest, they saw 6,000 people last year and found that debt management was the right option for only 19 percent of them. The rest were given a plan to work things out on their own.

With a customized consolidated payment plan you should be able to pay off your credit card debt in 3 to 5 years. You write the counseling agency one check each month and they pay all your creditors.

Do your homework
Facing mounting bills can be frightening, but getting debt relief is not a decision that should be based on hearing a radio commercial or getting a sales call. You want to find an organization that will design a debt relief plan specifically for you.

Shop around. Compare a couple of services and get a feel for how they operate. The credit counselor should spend at least 20 to 30 minutes with you in order to get a complete picture of your finances. If they don’t do that, you’re not really getting any counseling.

Ask a lot of questions and get those answers in writing. Find out about the fees. The Consumer Federation of America says you shouldn’t pay more than $50 for the set-up fee and no more than a $25 monthly maintenance fee. If the agency is vague or reluctant to talk about fees, go someplace else.

Don’t rely on names or the claim of a non-profit status. Check them out with the Better Business Bureau or your local consumer protection office.

By doing your homework you should be able to find a service that doesn’t over-charge or over-promise. Here’s a good place to start: The National Foundation for Credit Counseling. They’ll help you find a certified counselor near you.

State of Texas Senator Jeff Wentworth (R-San Antonio) believes many consumers could be falling prey to fraudulent business practices when participating with debt consolidation companies.  Senator Wentworth strongly urges caution when teaming up with debt relief organizations.  As a recent guest columnist in a San Antonio news magazine, Senator Wentworth described the potential for predatory activity in debt relief industries and offered resources to aid in consumer protection and awareness.  (http://www.mysanantonio.com/community/opinion/83399297.html)

The Better Business Bureau typically awards most “debt relief” companies operating in Texas the lowest possible rating of “F” due to consumer complaints, industry concerns and questionable business practices. Texas, California and Florida have the highest concentration of debt settlement companies, according to one industry trade group.

A proliferation of debt management companies means that Texans searching for help in reducing and paying off their debt should do their homework before signing on with a credit counseling organization. Because the state does not currently license these organizations, the burden of choosing a company that won’t result in more, rather than less, debt rests solely on the shoulder of the consumer.

During last year’s legislative session, the Legislature considered bills that would have given the state more authority to regulate debt management and consumer credit counseling companies as well as property tax lenders.

Senate Bill 1620, which I authored, gives the consumer credit commissioner greater authority to regulate property tax lenders. While this bill passed and was signed into law by Gov. Rick Perry, bills relating to debt management and consumer credit counseling companies did not pass.

In light of these circumstances and at my request as chairman of the Senate Jurisprudence Committee, Lt. Gov. David Dewhurst issued an interim charge to the committee. During the time between legislative sessions, the jurisprudence committee will study the effectiveness of current regulation and practices of debt management providers in Texas. In addition, the committee will assess the extent to which individuals’ estates are protected in transactions with debt management providers.

The committee’s recommendations will lay the groundwork for legislation to be considered in the 2011 legislative session. In the meantime, I urge Texans who are turning to debt management and credit counseling services to investigate carefully the services offered by the companies.

While many of the companies are reputable, others fail to disclose high fees that may result in even more debt, or they provide consumers with either misleading or completely false information about debt reduction. Because the Texas Legislature does not convene again until January 2011, Texans considering using the services of a credit counseling company or a debt management company should contact the Office of Consumer Credit Commission at www.occc.state.tx.us, the Finance Commission of Texas at www.fc.state.tx.us, or the Office of the Attorney General at www.oag.state.tx.us to learn more about the company.

There is no easy road to financial solvency, and any company that fails to emphasize how difficult it is to become debt free may be a company to avoid.

Senator Wentworth can be reached at jeff.wentworth@senate.state.tx.us.

As if mortgage fraud of the late 00’s wasn’t bad enough.  It is clear that those whom are in debt will have good reason to pay attention to upcomming legislation regulating debt consolidation and conseling services.

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