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Consumer Credit Counseling: California Cure ?

A consumer credit counseling California agency is sometimes a good choice for managing debt. The debt help includes budgeting advice and debt consolidation. This is achieved through enrollment in a debt management plan (DMP) that makes creditor-approved arrangements to reduce credit card interest rates. But, if your financial hardship requires more aggressive debt reduction, debt settlement may be a better choice.

The debt consolidation achieved in a debt management plan takes 4-6 years to complete. Debt management plans also require strict adherence. Missing a creditor payment can cause the enrollee to be dropped out of a debt management plan. Because of monthly payments generally equivalent to, or greater than a consumer's original minimum payment, debt management plans have experienced a high dropout rate. And they do not accept car or mortgage loans.

Many Californians have been victimized by debt management plans provided by consumer credit counseling California agencies. A classic example was Ameriddebt, formerly one of the country's largest consumer credit counseling agencies. The non-profit was fined and shut down by the Federal Trade Commission for functioning as a for-profit and falsely advertising its services.

Ameridebt employees notoriously consulted with California consumers over the phone as salespeople. However, the non-profit organization was required to be trained to provide personal budgeting and educational advice. They also sold fee-based debt management plans to consumers while competing for commission and bonuses. Despite advertising that they charged no upfront fees (Note: consumers are not legally required to pay the non-profit agencies' "voluntary contributions"), Ameridebt willfully charged upfront fees. Then they secretly transferred the fees to their for-profit affiliated company. They also claimed they would get clients "the best terms and lowest interest rates" although the interest rates and terms were pre-determined by creditors.

Below are important tips to avoid being ripped off by an unethical consumer credit counseling California agency:

Ask Questions

Find out if the agency has salaried, certified credit counselors. Ask for testimonials from satisfied clients. Also ensure their workers credit counselors don't rely on sales commissions. The organization must have trained professionals that are qualified to evaluate your finances and give you budget planning. If they find you unfit for a debt management plan, they should also refer you to a California employment-agency like the EDD, or a California-licensed bankruptcy attorney.

Avoid unsolicited, questionable advertisements

If you were solicited through spam mail or an unsolicited phone call and your phone number is listed on the Do Not Call Registry, report the agency to the Federal Trade Commission. Hearing a TV or radio ad does ensure that any service is legitimate. Also beware of false advertising claims by credit counselors, such as misrepresenting that they "can lower your minimum payment by as much as 50%." It's impossible to cut your debt in half by merely reducing your interest rates. The best referrals come from people you know or legitimate organizations like the Association of Independent Consumer Credit Counseling Agencies.

Only work with licensed, accredited agencies

A consumer credit counseling California agency must be licensed to offer debt management plans to the public. Accredited credit counseling agencies also adhere to strict professional and service standards, such as members of the National Foundation for Credit Counseling.

Check the organization's history of complaints

Perform online research like a Google search to determine the history of customer complaints against an agency. You can also inquire with the California Attorney General, or Rip Off Report. Avoid agencies that have excessive or unresolved customer complaints. If there are sales or service misrepresentations or failures to issue customer refunds, don't do business with them.

Don't trust verbal promises

If you received a verbal promise or guarantee, it should be explained in the written contract to include the payment amount, program term, fees, and explanation of all services being rendered.

Don't believe promises to repair your credit

Avoid companies that claim to fix your credit or remove negative information from your credit report. Legally, accurate credit items cannot be removed from your credit file.

Don't be forced to pay voluntary fees

Ensure the consumer credit counseling California agency is a 503-c non-profit organization. A non-profit can not force you to pay "voluntary contributions." It's up to you to pay this monthly fee. Also, participating creditors fund these agencies paying them a commission known as "fair share." The commission is 8-12% of every dollar that you pay into a debt management plan. To learn if a consumer credit counseling California agency is non-profit, you can check with the National Association of State Charity Officials.

Even trusted credit counseling California agencies can dig you deeper in the hole

In a July 2001 report from Consumer Reports entitled, "Pushed off the Financial Cliff", based on a national survey the consumer watchdog group conducted on 1,300 consumer credit counseling agencies, reported that debt management plans have a 79 percent dropout rate. One reason for the high dropout rate was that debt management plans generally burdened consumers with unbearable monthly payments, which equaled to or exceeded the consumers' original minimum payments.

A major reason why credit counseling doesn't work for a lot of people is that interest rate reduction alone generally does not provide much help to a potential bankruptcy risk. People in extreme financial hardships need a strong bankruptcy alternative. One option is debt settlement, which can provide substantial debt reduction benefits. Negotiating a debt settlement can slash the total debt, including the principal, interest, and fees.

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