All credit counseling advertisements promise to give the perfect helping hand for people in debt. But reality speaks differently.
The truth is, some credit counseling agencies take advantage of their clients by charging them with hidden costs and expensive fees in exchange for their services. Instead of helping people be debt free, these “false” counseling agencies actually lead their unsuspecting victims to deeper debt problems.
If you need credit counseling, don’t sign up with any agency without first doing your research. Take note that even agencies that claim to be “non-profit” organizations can rip you off.
If you’re not careful, you could end up with the wrong choice. Consider these three major red flags:
You are asked to pay ridiculous charges. Under the Federal Law, credit counseling agencies cannot ask for fees until after they’ve rendered services. If an agency asks you for an upfront payment without first providing the appropriate help, find another agency. In addition, if the agency is charging expensive fees, you can bet that it’s not a trustworthy one.
The agency ONLY accepts clients with large debts. Some agencies require at least a minimum of $5,000 debt amount before accepting a client. Clearly, this agency is just out to make money. A real credit counseling agency should be willing to work with a client regardless of how much debt he owes. The main objective should be to help people recover from debts, not to distinguish which ones have more debts than others.
The agency insists that a debt management plan or a debt consolidation is the only solution to your problem. A reliable credit counselor should first examine your financial situation before making any recommendation. Enrolling in a debt management plan or obtaining a consolidation loan may be necessary on extreme debt cases, but this doesn’t mean that everyone should go through it.
If your counselor insists that you enroll in their debt management program (DMP) or apply for a consolidation loan without considering the root of your debt problem, it is most likely that the agency makes money out of it. Indeed, some agencies pay their counselors based on commissions or the number of clients they can enroll in the program.
Also, a DMP means you’ll be submitting your payments to the agency. In turn, the agency would be the one to distribute your payments to your creditors. However, there is a danger that the agency won’t be submitting your payments on time and that you can get charged with hidden costs. On the other hand, a debt consolidation loan may seem to be a quick fix to a debt problem, but there is a big possibility that your agency charges high rates and fees for the loan they offer.
More than just recommending debt management or debt consolidation, a real credit counselor who has your best interests at heart should help you learn about correct financial management, help you control your spending, and teach you about wise tactics to stay out of debt permanently. If the agency isn’t willing to help you unless you agree to sign up for their debt management plan or loan, take your business somewhere else.