The Federal Trade Commission has information on dealing with debt on
its Website at
As an attorney, I have seen too many clients pay too much money to
companies which claim to be “credit counselors.” There are things you
can do to ensure that you get good counseling at a reasonable price.
First of all, make sure that any credit counseling agency is a “non profit
corporation,” recognized by the Internal Revenue Service. You can contact
the IRS, to determine if the service is recognized.
Second, use a credit counseling service with a local office. In many
instances, people send money to an agency which is out of state, and
getting very little, if any help in return. This reminds me of the Nigerian
scam, where you are promised millions, if you only send a small
processing fee of a few hundred dollars.
Third, the credit counseling service should be paid as you are paying off
the debt. I will now describe what I call ripoff scene #1.
- A debt management company tells you that you should stop paying all of your unsecured debt
- The company tells you that you need to save money to pay off the debt.
- The company claims that they can get the creditor to take 10% to 25% of the amount owed.
- The company indicates that you need to save money to pay off the debt, at the reduced amount
- The company claims that you can put the money into a trust account which they will establish for you.
NOW WATCH OUT FOR WHAT THEY DON’T TELL YOU COMPLETELY
- The company makes most of its money up front, from the fees you are paying. Often you will first pay the company $2,000 to $3,000, before any money goes into the trust account
- There is no guarantee that any creditor will accept 10% to 25% of the principal and interest due.
- The interest charges continue to grow, while you are not paying the creditor.
- If you have many creditors, some of the creditors are likely to sue you, before you have enough money in the escrow account, to cut a deal
With a reputable credit counseling agency, such as Money Management
International, you pay no up-front charges. The agency works out a
payment plan to pay off of the creditors. Many of the creditors accept a
reduced interest rate, in exchange for regular payments.
A honest credit counseling agency will tell you that you need to file
bankruptcy, because you cannot afford to pay off your creditors.
Attorney Robert M. Singer
Law Offices of Robert M. Singer, LLC
2572 Whitney Avenue
Hamden, CT 06518