Credit Advice You Can Trust
When you're looking for a firm to help you get out of debt, don't rely on an Internet search.
When Lanette Bridges set out to tackle her massive pile of debt -- $30,000 in credit-card bills and bank loans -- a couple of years ago, she turned to the Internet first. Bridges typed "credit-counseling services" into an online search engine to find an agency that would help her pay it off. Bridges, an assistant teacher at a child-care center in Imperial, Mo., found an agency that promised to withdraw money every month from her bank account to repay her creditors. She signed up.
Several months later, Bridges was still getting calls from her creditors. When she contacted the agency, she was told not to worry. But she checked her balances with her creditors anyway -- and saw that her debt hadn't decreased.
At that point, a friend recommended she call ClearPoint Financial Solutions, another agency. This time, she checked with the Better Business Bureau to make sure ClearPoint was legit. It was. A ClearPoint counselor was able to talk to her creditors, explain what happened and work out a payment plan. But Bridges still lost the more than $2,000 the bogus firm withdrew from her checking account.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
With consumer debt at sky-high levels, such stories are becoming all too common. Two prevalent schemes involve companies that claim to be credit-counseling agencies and firms that say they are "debt settlement" organizations. A legitimate credit-counseling agency will educate you about budgeting and how to use credit, as well as help you set up a debt-management plan if you need one. A debt-settlement firm merely offers to negotiate with your creditors. But bogus companies take your money and run.
Since 2001, the Federal Trade Commission has sued 14 firms that claimed to be credit-counseling agencies or debt-settlement firms but allegedly were neither. Last fall, as a result of one of the suits, a record $12.7 million was returned to 287,000 victims.
In a related scam, often hawked in radio ads, firms claim to be able to "repair" your credit record or make your credit score go up virtually overnight. "Steer clear of a credit-repair firm that claims it can take accurate, negative information off your credit report," says Lynne Strang, vice-president of the American Financial Services Association, the trade association for the consumer credit industry. "They can't." If your credit score has been hurt by inaccurate information, you can alert the credit-reporting agency on your own.
Is it legit? Once you get in the door, ask about fees. If the credit counselor won't talk about what the agency charges, walk away. According to the National Foundation for Credit Counseling, the initial counseling session should be free or cost very little -- $15 or so. If, after a 60- to 90-minute initial consultation, you sign up for a one-time debt-management plan, the average fee is $28. If you enter an extended debt-management program, you may end up paying about $23 a month.
If the agency tells you to stop paying your creditors, that's a bad sign -- if you stop paying your bills, that puts your credit rating at risk.
Also beware of agencies that pressure you to sign up for a debt-management program. Some agencies focus on such programs because they're paid by the creditors to sign up clients.
INFORMATION TO ACT ON
Three Easy Steps to Find a Good Credit Counselor
1. Get in touch with one of the organizations that help vet credit-counseling firms: the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies. Only legitimate credit-counseling firms can join either organization.
2. Run the agency's name by your local Better Business Bureau to see whether it's accredited before you hand over any money or financial information to a credit-counseling service.
3. Then check for complaints against the organization and whether they were resolved.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Stock Market Today: Stocks Pause as Investors Assess Fed Policy
The Federal Reserve met expectations with a quarter-point rate cut.
By David Dittman Published
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
By Dan Burrows Published
-
Roth IRA Contribution Limits for 2024 and 2025
Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
By Jackie Stewart Last updated
-
Four Tips for Renting Out Your Home on Airbnb
real estate Here's what you should know before listing your home on Airbnb.
By Miriam Cross Published
-
Five Ways to a Cheap Last-Minute Vacation
Travel It is possible to pull off a cheap last-minute vacation. Here are some tips to make it happen.
By Vaishali Varu Last updated
-
How to Figure Out How Much Life Insurance You Need
insurance Instead of relying on rules of thumb, you’re better off taking a systematic approach to figuring your life insurance needs.
By Kimberly Lankford Last updated
-
Amazon Big Deal Days Is Coming! We’ve Got All the Details
Amazon Prime To kick off the holiday season with a bang, Amazon Big Deal Days runs Tuesday, October 8 and Wednesday, October 9.
By Bob Niedt Last updated
-
How to Shop for Life Insurance in 3 Easy Steps
insurance Shopping for life insurance? You may be able to estimate how much you need online, but that's just the start of your search.
By Kaitlin Pitsker Published
-
Five Ways to Shop for a Low Mortgage Rate
Becoming a Homeowner Mortgage rates are high this year, but you can still find an affordable loan with these tips.
By Daniel Bortz Last updated
-
Retirees, It's Not Too Late to Buy Life Insurance
life insurance Improvements in underwriting have made it easier to qualify for life insurance, which can be a useful estate-planning tool.
By David Rodeck Published