Consumer
Credit Counseling California
Consumer credit counseling agencies
in California – “Lifesavers”
or “life sentence”
If you’re being bludgeoned by uncontrollable
debt or have delinquent bills, a California
consumer credit counseling agency can
be a financial lifesaver. Also known as
“credit counseling”, consumer
credit counseling can coach you on how to
manage your credit and finances. It can
also provide needed financial relief in
lowering minimum payments to your creditors.
But consumer credit counseling has many
pros and cons for consumers.
How consumer credit counseling
works
Besides giving you budgeting advice, all
consumer
credit counseling agencies administer
a debt management plan (DMP). This is a
creditor-approved arrangement that is negotiated
between a consumer credit counselor and
your creditors, that permits you to repay
your debts at reduced interest rates. Sometimes
within the plan, creditors also agree to
eliminate late fees or other charges.
In exchange for your DMP benefits, you
must strictly adhere to a creditor repayment
schedule. This is accomplished by remitting
a regular monthly payment, usually electronically,
to the consumer credit counselor who then
remits payment to each of your creditors
each month.
Completing a DMP generally takes five years.
The plan accepts most unsecured debts. Thus
on a secured debt like a mortgage or car
loan, you’re still required to continue
paying the creditor. Additionally, not all
creditors participate in DMP agreements.
Before you enroll, ask your consumer credit
counselor which of your debts are mutually
accepted by the DMP and your creditors.
Under the right financial situation, a
consumer credit counseling plan help you
customize a convenient plan to repay your
creditors. But choosing the wrong consumer
credit counseling agency can be a financial
disaster. Case in point is AmeriDebt.
Possibly once the country’s largest
nonprofit consumer credit counseling organizations,
AmeriDebt ripped off many California consumers
functioning as a profit-driven company.
The nonprofit falsely advertised that it
provides credit counseling to consumers.
However their employees who consulted with
consumers on the phone were basic salespeople.
As a nonprofit, their credit counselors
were required to be trained and provide
personal budgeting and educational advice
to consumers.
The AmeriDebt salespeople referred to
as “credit counselors” sold
fee-based debt management plans to consumers
while competing for commission and bonuses.
Although they generally advertised they
charged no upfront fees (and consumers were
not legally required to pay their specified
“voluntary contributions”),
fees were willfully charged to consumers
and secretly transferred to the non-profit
organization’s for-profit companies.
Another false advertising claim by AmeriDebt
was that they would obtain “the best
terms and lowest interest rate” for
their clients although creditors dictated
to AmeriDebt beforehand what interest rates
and terms will be given to consumers who
joined their debt management plan.
Beware of the common pitfalls…
Below are important tips to help you avoid
pitfalls in finding a reputable California
consumer credit counseling agency:
>> Research
your options. Does the agency have
a reputable track record? Do they provide
fixed or negotiable interest rate reductions?
Can they provide testimonials from satisfied
clients? Do they hire salaried professionals?
A professional consumer credit counselor
shouldn’t rely on sales commissions
and should take the time to ask you about
your income, fixed living expenses, and
creditor repayment obligations. They should
also carefully evaluate your financial information
and recommend ways for you to improve your
finances. This may include participating
in educational classes and/or enrolling
in a consumer credit counseling Debt Management
Plan (DMP). If you’re unemployed they
may refer you to get financial assistance
from a California state employment agency.
If they assess that you’re “insolvent”,
they may not be able to help you. But they
may likely suggest that you get financial
advice from a California licensed bankruptcy
attorney.
>> Avoid unsolicited or questionable
advertising claims. If a consumer
credit counseling agency solicited you through
spam email or unsolicited phone calls despite
your phone number being listed on the Do
Not Call Registry, chances are they agency
is a shady operation. You should not do
business with them. Remember, the best business
referral may come from someone you know
who has used a California consumer credit
counseling agency in the past. You can also
find a trusted agency through the National
Foundation for Credit Counseling (www.nfcc.org)
or Association of Independent Consumer Credit
Counseling Agencies (www.aicca.org).
If you’ve seen TV ads or heard their
radio commercials, even if the agency has
a big advertising budget it does not mean
they’re a reputable organization.
Also remember that the more incredible the
promise, the more likely it’s not
true. A common advertising claim that has
been reported by some consumer credit counseling
agencies is to “lower your monthly
payments by as much as 50%.” But this
is a very deceitful, dishonest claim.
>> Only work with licensed
and accredited agencies. California
requires that a California consumer credit
counseling agency be licensed to offer credit
counseling, or debt management plans to
the public. An accredited agency is typically
the best choice because they adhere to strict
professional and service standards. Most
are members of the National Foundation for
Credit Counseling or Association of Independent
Consumer Credit Counseling Agencies. You
can generally verify their accreditation
and licensing at those agencies’ Web
sites.
>> Check the agency’s
complaint records. Through a simple
Google search, you may be able to differentiate
a good agency from a bad one. The Internet
stores a wealth of online information about
many companies. A great source to review
an agency’s history of consumer complaints
or lawsuits is the Better Business Bureau
(www.bbb.org), the California state Attorney
General. You can also try an excellent consumer
watchdog groups, Rip Off Report (www.ripoffreport.com).
Some red flags to look out for are agencies
with complaints against them due to a lack
of responsiveness, misrepresentations of
their services, or a failure to process
cancellations, or issue customer refunds.
>> Don’t believe verbal
promises that are not in writing.
All verbal promises or guarantees should
be clearly explained in your written contract.
You should also see in writing the services
they promised to perform, all payment terms
and service fees, and the agency’s
cancellation procedures.
>> Don’t believe false
promises to repair your credit.
Avoid agencies that promise to fix your
credit problems or claim they can remove
negative information like late payments,
collection accounts or a bankruptcy, from
your credit report. These are all false
claims that are also illegal since accurate
credit information cannot be legally removed
from your credit report.
>> Find out how the agency
is funded. If a consumer credit
counseling agency is 503-c non-profit organization,
they may charge you a “voluntary contribution.”
This is typically a minor fee for managing
the plan. The reason for this is that they
also receive partial voluntary contribution
funding from participating creditors. This
is known as a “fair share” fee,
which creditors voluntarily pay to the consumer
credit counselors for collecting the DMP
monthly payments,
Prior to enrolling in a DMP, inquire if
the agency is non-profit. If they require
you to pay them a voluntary contribution,
it is unethical and you should consider
doing business elsewhere. To find out if
a California consumer credit counseling
agency is “non-profit” you can
check with your state charity official by
visiting the National Association of State
Charity Officials Website (www.nasconet.org.
Even the good agencies might not
help you succeed…
In a July 2001 Consumer Reports article
titled “Pushed off the Financial Cliff”,
based on a national survey of consumer credit
counseling agencies conducted by the consumer
watchdog group, they reported that their
debt management plans experience a “79
percent dropout rate.” The bottom
line is that many people that have found
themselves with a financial hardship have
needed a much more aggressive solution to
manage their debts. Struggling with a major
loss of household income, a mere interest
rate reduction of their debts has not been
enough to fix their problems,
Realistically, in order to stay afloat
and possibly avoid bankruptcy, many consumer
credit counseling dropouts have also needed
to lower their monthly payments by 30-50%.
To do this would not only require a substantial
reduction in interest, but also of the principal
debt amount. But there are only two ways
to drastically reduce your entire debt load
– Chapter 13 bankruptcy and debt settlement.
Another issue reported by many consumer
credit counseling dropouts is upon missing
just one scheduled monthly payment, they
were terminated from the DMP. “If
you’re cancelled from a DMP, your
interest will reset to the higher percentage
rate that originally struggled with”,
warns Gerardo Hernandez, Chief Operating
Officer of Debt Free League,
a California-based debt settlement company.
“Over 50 percent of our debt settlement
clients were consumer credit counseling
dropouts. Thankfully, we were able to open
the floodgates to help many California dropouts
resolve their debts through a more convenient
monthly payment”, adds Mr. Hernandez.
In Southern California and the Houston
area, Debt Free League
has established key relationships with mortgage
brokers to help consumers that were turned
down for mortgage refinancing or home equity
loans in order to consolidate their debts.
Many of these people are victims of the
mortgage lending crisis who may face foreclosure
of their homes due to high-credit risks
or low equity values on their homes. The
company’s Debt Liquidation program
is a foreclosure and bankruptcy avoidance
procedure, which performs well in negotiating
adequate settlements of unsecured debts
like credit cards and other personal debts
as well as business debts and medical accounts.
About Debt Free League
Debt Free League is a Debt
Settlement organization that works on behalf
of consumers and small businesses to negotiate
the settlement of unsecured debt. Working
through key relationships with creditors,
collection agencies, and collection attorneys
throughout the country, their Debt Liquidation
Program has produced substantial unsecured
debt reductions and a variety of credit
improvement benefits for many clients.
For more information, Contact
Debt Free League’s Web site at www.debtfreeleague.com
Contact:
Sales
sales@DebtFreeLeague.com
(800) 213-9968
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