In
the past week, the beginning of October 2003, The IRS, FTC,
and several state agencies announced a crack down on so-called
non-profit debt-free counseling firms that are not delivering
what they promise. After a few legitimate firms started debt-counseling
a few years ago, many illegitimate businesses started promoting
themselves as such. Some have TV ads, some have newspaper ads,
some have magazine ads, some have internet ads, and some have
all of these ads. What makes them illegitimate, is their dishonesty
to customers.
Many of the illegitimate debt-counseling services charge
a fee for counseling and never counsel. Many ask clients
to turn their money over to them to pay their bills , but
the bills don't get paid, or the bills are only partially
paid in an untimely fashion, and the consumer is left with
as much or more than double the credit card balance they
started with and worse, bad debt is placed on their credit
report in the form of late payments and non-payments of bills.
How are these companies allowed to get away with this? The
explanation was give as such, in recent years Americans have
increased their credit card debt and other debt astronomically.
Because of this increased debt, legitimate debt-free counseling
services were created to help consumers get out of debt.
Then, the illegitimate debt-free counselors found a loop
hole in the law. They found that the laws for protecting
consumers in the business are insufficient.
By the time the authorities caught
on there were thousands of illegitimate companies who had
jumped on the bandwagon
of so-called non-profit debt-free counseling. They misrepresent
the truth and make their money by charging large fees or
recommending their own high interest debt-consolidation loans
or poor home refinance loans to get the consumer in more
debt than they ever dreamed of. Some of them simply ask the
consumer to pay them instead of their creditors, they take
the consumers payments for a year, without making payments
to the consumers account, then they go to the consumers company
and say, "this is what your customer can afford to pay,
please write off the rest." The customer finds later
that at least double or more of the balance is listed on
their credit report as bad debt, and the debt-counseling
service has retained part of their payments for their own
fee. This is exactly what happened to a young college student
who spoke to me at one of my seminars. She ended up oweing
double her original balance, AND it was listed on her credit
report as bad debt without her knowledge.
There are a few legitimate debt-counseling services. To
protect yourself, be weary if they ask you to pay up front
fees, if they ask you to give them your payments, or if they
ask you to take out a loan to pay off debts. Taking out a
loan to pay off debts is called debt replacement, not debt
payoff. In most cases the replacement loan is much more expensive
than the loan the consumer already has.
Related Links:
Get Debt
Free The Right Way
Debt Investment Calculator
Savings Goal Calculator
Lois Center-Shabazz is the founder of MsFinancialSavvy.com and author of the
3-time award-winning personal finance book, Let's Get Financial Savvy! ISBN
#0971979502.
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