You'd almost have to be an ostrich with your head stuck in the sand to not see or hear at least one advertisement a day
from a Credit Counseling or Debt Consolidation Company. However, you can expect this to change and change soon. Since this
is a topic which tends to "stir up" the owners of these businesses, I am going to take a different approach by NOT sharing
my opinion, but rather, the opinion of others. I will start with the news media and the Internal Revenue Service:
"(NPR News, May 15, 2006). The Internal Revenue Service is revoking the tax exempt status of some of the largest credit
counseling agencies in the country. An IRS investigation disclosed that the firms solicited business from people seriously
in debt and that they didn't provide counseling or consumer education, as required.
Prodded in part by a congressional oversight committee and consumer advocates, the IRS began investigating dozens of credit
counseling agencies -- most holding non-profit status -- two years ago. IRS Commissioner Mark Everson says the companies "poisoned
an entire sector of the charitable community."
Everson says in many instances, companies were organized merely to funnel business to loosely affiliated for-profit companies.
Many of the firms spend millions of dollars on commercials that urge anyone with debt to call them to solve their financial
woes. And because tax-exempt organizations are not bound by the federal do-not call list, the firms were able to randomly
call consumers, pitching their services under the guise of a non-profit counseling service.
The IRS investigations are also likely to affect consumers, thanks to a new bankruptcy law that requires consumers considering
bankruptcy to get counseling before they are allowed to file. The IRS wants to ensure that only legitimate non-profit agencies
are doing the counseling. In addition to the actions announced Monday, the IRS is sending more than 700 compliance letters
to the rest of the credit counseling industry (END)."
Since almost all Credit Counseling and Debt Consolidation companies claim a non-profit status, I feel most consumers are
easily sucked in with their skepticism and defenses at bay. After all, when most of us hear the word "non-profit" the first
thing we usually think of is a church or homeless shelter.
From the NPR article and the actions of the IRS, I think it's fair to assume that many of these "non- profit" organizations
have been operating under a scenario similar to that of a wolf guarding a hen house. However, this doesn't mean all credit
counseling and debt consolidation companies are bad but... you do need to know the truth about how they operate and their
The first thing you want to understand is these companies are ALL more interested in making money off you than they are
in preserving your credit rating. The bottom line with either credit counseling or debt consolidation is that it absolutely
ruins your credit. I can just hear the companies arguing this with a consumer right now, telling them nonsense like "It helps
your credit since it tells creditors that you're working on your situation and not just running away from it." Listen... if
one these places tells you that than watch out. Why? Because they will lie to you about other things as well!
One of the first actions these programs usually requires you to do is for you to CLOSE all your revolving credit accounts.
You then make payments to the organization and they take care of everything for you. What this says to all your creditors
(as well as anyone considering giving you credit) is that you are so out of control with your finances that you can't even
manage paying everyone back on your own. Therefore, you're hiring someone else to do it for you!
99% of the time these companies will claim they can negotiate with your creditors and get interest rates reduced thereby
saving you money. While this is true, what's also true is you can easily negotiate these same rates as well as they can by
just calling your creditors yourself. You'd be amazed at how many of your creditors would love to hear from you (especially
when the chips are down!). Not too mention, any money the counseling company was to save you would more than likely be sucked
back up by their monthly fees (usually around $500 to $1,000 per year).
This brings us into a whole other dynamic of their business model. Because these companies always make their money off
of monthly fees paid by the consumer, the longer they can keep those monthly fees coming in the more profitable their business
will be. It's for this reason that most consumers who sign up with these companies usually find themselves on payment plans
with the lowest monthly payment possible (which turns out to also be the LONGEST payment plan as well). Not surprising is
Am I against Credit Counseling and Debt Consolidation companies? Absolutely not. After all, there are millions of people
in America who will never be able to manage their finances. Credit to them is a destructive addiction much like alcohol or
drugs and they will never be able to control it. Instead, it will always control them. We've all seen these people. Every
time they are extended credit shortly thereafter they are in financial trouble (usually blaming it on some external factor).
For these people I think these credit and debt counseling programs can be a good thing (as a ruined credit report is not a
hindrance to them but actually an asset). It keeps them out of future financial trouble by forcing them to live their lives
on a "cash and carry" basis; which is ultimately conducive to a better standard of living down the road.
On the other hand. If you're good with your finances and have control with credit but went through some type of hardship
beyond your control in the past (i.e. divorce, job loss etc); then the services of these companies will never be for you.
You will do far better and preserve your credit rating by taking matters into your own hands. Reason being is that you understand
your credit rating is a powerful tool that can help you move ahead faster, help others and help yourself as well as create
the life you want. It all comes down to self management. We all know that those who cannot manage themselves will ultimately
be managed by others. Credit is no different. When you learn to manage it well, you are the master and it is the servant.
If you care about your credit and want to benefit from it in the future, then you will never rely on a credit or debt counseling
service to help you get out of any trouble you find yourself in. Instead, you'll look inward and get yourself out while preserving
your credit rating the best you can. Credit and debt counseling is for people who are "ok" with throwing their credit rating
in the trash so they can have "someone else" manage their payments for them (since they are unable to manage them themselves).
And again, as far as negotiating interest rates, you can do just as good as them or better. If you don't believe me just call
any of your creditors and straight out tell them your situation. You will quickly find you don't need to be afraid of them.
They just want to get paid like the rest of us.
Next we'll be talking about... "The Truth About Creating an Alternate Credit File" =================================================
The "CREDIT SECRETS BIBLE" has been in print since 1994 and is published
by Consumer Publishing Group. For more information on the "CREDIT SECRETS BIBLE" click here.