CONSUMER CREDIT COUNSELING AGENCIES: TOP SECRETS THAT YOU SHOULD KNOW!

Jack Justin Adams

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Bankruptcy Attorney

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Posted about 2 years ago. 3 helpful votes

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Many people turn to these agencies first before they consult with an attorney. Many clients have expressed great concern over the way their financial affairs were handled by credit counselors. We have received reports from several individuals that they received no help from credit counseling. These cases usually involved agencies that require a large payment up front or ones that state they will hold your money and then try to negotiate settlement with your creditors. Before you enter this type of arrangement contact the Missouri Attorney Generals CONSUMER FRAUD office and the BETTER BUSINESS BUREAU.

1. Credit Counseling: What Are They? What Do They Do?

Credit Counseling Agencies are collection agencies working for and are controlled by the credit card companies.

At most they will help you lower your credit cards interest rates a little. and only with respect to credit cards with companies that are willing to participate. If you need is to get rid of debt Credit Counseling Agencies are of no use. Only bankruptcy can actually get rid of debt.

If you want to consider a credit counseling plan first check out how bankruptcy works. You will be totally surprised. Bankruptcy is so much better than credit counseling.

2. Credit Counseling: Many Are Scams:

Many of the organizations that run ads on TV and on the Internet, are simply scams organizations. Their goal is to get you to send them money. The sad thing is that people actually fall for these scams.

Unfortunately, there is very little State or Federal regulation to oversee these organizations.

3. Credit Counseling: The False “Non-Profit" :

They use not for profit to make the public think they are benevolent. WRONG. The truth is that any organization can make itself look like it makes no profit by simply paying huge salaries to its officers and other employees… or by paying inflated costs out to affiliated “for profit" companies.

4. Credit Counseling: The Misleading “SAVE 60% IN JUST SECONDS" Pitch:

Many, Credit Counseling Agencies use misleading promises. They are only talking about credit card accounts, and then only with respect to those credit card companies that have agreements with them. Second, is the fact that they sound like they are getting rid of your debt. This is not true. You still have to pay the whole debt, plus plenty of interest. And this is the main distinction between what credit counseling and what filing bankruptcy can do.

5. Credit Counseling: They Are “Bill Collectors", Working For & Controlled By Credit Card Companies:

Certain credit card companies agree to lower their interest rates somewhat in exchange for agreeing to accept regular monthly payments on a repayment plan set up for a period of years by one of these credit counseling agencies. The reason credit card companies do this is to keep would-be customers out of the hands of bankruptcy attorneys. Bankruptcy attorneys don’t just lower interest rates…bankruptcy attorneys eliminate debt and they sure aren’t bed partners with the credit card companies. Bankruptcy attorneys use the bankruptcy laws to actually get people out of debt.

Understanding all this…is it any wonder that these credit counseling places “bad mouth" bankruptcy. Bankruptcy does what credit counseling agencies can only dream about doing for their customers.

6. Point By Point – Bankruptcy versus Credit Counseling:

Here are just a few of the things bankruptcy can do that credit counseling cannot.

  • Bankruptcy can get rid of debt And…when you get rid of debt, you also get rid of the obligation to pay interest on that debt. Credit counseling can only get rid of interest, and then only some of that. With credit counseling, you still have to pay all of the debt.,
  • Bankruptcy: you control the creditors.

Credit Counseling: The creditors are in control.

  • Bankruptcy eliminates “pay day" loans. Credit Counseling: can’t do anything
  • Bankruptcy can put your secured creditors under control. For example, say you are behind on your house or car loan. Bankruptcy can put these creditors under control giving you months and even years to catch up. This can take the pressure off, and can be the difference between keeping or losing your house and car. Credit Counseling: can’t do a thing with these creditors.
  • Bankruptcy can lower your monthly expenses, in the vast majority of cases, significantly more than Credit Counseling. Think about it. Bankruptcy can get rid of debt, and getting rid of a debt stops the payment permanently. You never have to pay it ever again.Credit Counseling: you still have to pay the debt, because Credit Counseling, at best, only gets rid of some of the interest.
  • Bankruptcy helps you start re-building your credit faster. It goes without saying that the first step in re-building your credit is to get rid of some debt. Why? Because getting rid of debt puts you in a position to afford new credit, and because putting you in a position to afford new credit attracts new lenders willing to give you more credit.Credit Counseling does not get rid of debt… only some interest….so it takes you longer to get out of debt, and the longer it takes you to get out of debt…the longer it will take you to look attractive to new lenders willing to give you credit.Credit Counseling makes you less attractive to lenders, and therefore hurts your ability to get credit.
  • Bankruptcy can stop wage garnishments AND Bankruptcy can get rid of Federal and State income tax debt. Bankruptcy can put the IRS and State tax agencies under control, stopping wage garnishments and tax levies ….and…..bankruptcy can actually get rid of significant Federal and State income taxes (as long as you qualify under 4 simple rules),Credit Counseling cannot do a thing. Credit Counseling has no power at all over Federal or State income tax agencies.
  • Bankruptcy is a Federal law and has the full weight of the U.S. Federal government behind it. Credit Counseling is controlled by the credit card companies, who can change the rules of the game anytime they want.
  • Bankruptcy is an established system of law, procedures and regulations, created to protect you. The Bankruptcy system is run by Judges and lawyers licensed to practice and closely policed by State Bar licensing boards. Credit Counseling: This industry is completely unregulated, with no one to protect you at all. Is it any wonder so many people get scammed out of their hard-earned money by so many of these organizations. But…Don’t take our word for it. Read about the abuses for yourself. See the reports referred to below.
  • The Bankruptcy version of “bill consolidation"….which is called Chapter 13…. is closely regulated to make sure that you can afford to make the payments. It also puts the full authority of the Bankruptcy Court to work for you to make sure you are not taken advantage of. Credit Counseling: Credit Counselors will put you into a payment plan….even if you can’t afford it.

The bottom line: Instead of telling people how bankruptcy really works….and all the good things that can come from filing bankruptcy……the credit counseling outfits are forced to feed off the “stigma" that most people attach to bankruptcy.

7. Credit Counseling: Putting People Into Plans People Cannot Afford:

And even worse, the public gets sucked into repayment plans that….in my experience…they generally cannot afford…spending hundreds of dollars a month on credit counseling repayment plans….repayment plans which suck away money desperately needed to take care of and support their families….repayment plans which virtually guarantee that….in the final analysis…the only option left will be bankruptcy.

8. Credit Counseling: Leaving Families Worse Off:

And even worse is that fact that putting people into credit counseling repayment plans that they cannot afford, only makes things worse. People are left worse off than if they had never signed up.

9. Credit Counseling: Their Real Purpose- To Keep People Away From Bankruptcy Attorneys:

There are, I am sure, people who have successfully completed one of these credit counseling plans, but I suspect the percentage is very small. From the credit card company’s point of view, credit counseling programs are always a success…regardless of whether or not the customer completes the repayment plan. Why? Because every month a customer makes a payment on one of these repayment plans…. is a month the credit card companies take in more money than if the customer filed bankruptcy ….and one more month that the customer is kept out of the hands of a bankruptcy attorney.

10. Credit Counseling: The Credit Card Company “Kickbacks" They Do Not Tell You About:

One of the major “come-ons" the credit counseling companies employ is that fact that they do not charge you for their service. But…think about it. Every organization has to pay its bills, the salaries, the rent, the utilities, the cost of all those ads on TV, the cost of phone book ads, etc., etc. The money has to come from somewhere. So where does the money come from?

The answer is “kickbacks" from the credit card companies.They call this money “fair share". The credit card company pays the credit counseling company a percentage of the money that the credit counseling company collects for and sends in to the credit card company. The problem with these kickback-based operations is that the credit card companies can then exert tremendous pressure over the credit counseling companies to downplay, bad mouth and misrepresent the bankruptcy laws.

11. More Bad News About Credit Counseling:

And, this is just the tip of the iceberg. There is lots of bad news about Credit Counseling. But don’t take our word for it. See for yourself the report from the Consumer Federation of America, a major consumer protection organization. To find the report, go to http://www.consumerfed.org/ , then click on “Finance", then click on “Credit Counseling". The report is entitled: “FIRST-EVER STUDY OF CREDIT COUNSELING FINDS HIGH FEES, BAD ADVICE AND OTHER ABUSES BY NEW BREED OF “NON-PROFIT" AGENCIES".

Additional Resources

Consumer Federation of America

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