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Debt Management

Credit Counseling

Credit Basics

Here are ways to wipe out debt

by by Robert K Heady
Banking Columnist
January 12 2004

FORT LAUDERDALE, FL -- In just a few weeks the big bills will start rolling in, reflecting all the spending you did over the holidays, plus other stuff you owe. Suddenly you realize -- you're way over your head in debt and probably need credit counseling.

But where do you start? Are all those television ads promising "easy debt settlement" any good? There are about 2,500 credit agencies out there, but how do you know the one you turn to is legit?

You're not alone. Consumer debt has more than doubled in the past decade, to the tune of $1.98 trillion including credit cards and car loans, but not mortgages, according to the Federal Reserve. The average is $18,700 per U.S. household, yet the typical Joe and Jane know practically zip about credit counseling.

These tips will help, say experts:

Do business with a large, established organization. It's more likely to advertise in the Yellow Pages. But first do your homework. Contact the Better Business Bureau and ask if the company has any unresolved complaints against it. Also check with your state's department of consumer affairs.

"Bigger players generally are better players," says Howard S. Dvorkin, president of Consolidated Credit Counseling Services (954-484-3328), "but a lot of dangers are lurking in the Internet world."

For example, last November the Federal Trade Commission and four states sued Ameridebt for fraud, charging it hid fees and did not educate people about how to get rid of debt. You only want to deal with accredited, certified counselors, no one else. The two major nonprofit organizations that will refer you to a counselor in your area are the National Foundation for Credit Counseling (NFCC), reachable at 800-388-2227 or www.nfcc.org, and the Association of Independent Consumer Credit Counseling Agencies (AICCCA), at 800-450-1794 or http://aiccca.org.

Watch out for fees. Be leery of credit outfits that tell you, "We don't charge fees here," but bury them in tiny print of a 12-page contract. Example: "The first six months of what you pay goes to us." Typically, reputable agencies should charge you a maximum of $75 up front, then an average of $25 per month for handling your payments to creditors.

Beware of "processing fees" and anyone who tries to shove you into a "debt management plan" right off the bat. "You may not need one," according to John C. Gormley III, president of Consumer Credit Management Services at 800-590-3328. "That could instantly close off all your accounts and potentially damage your credit record." Gormley, who I learned has a very caring attitude toward clients, has heard of cases where consumers have been hit for $1,000 or more for application fees, processing fees and first-month's payment fees.

"Shop around," he urges. "Read all the documents -- get everything in writing."

"Sometimes," adds Joel Greenberg of NovaDebt in Freehold, N.J., an agency will label the charges as "voluntary contributions," but don't be suckered in by that language, either. And be extra careful of the accuracy of information you give the agency. Consolidated Credit's Dvorkin told of one woman who gave the wrong creditor account number to an agency, and it was several years of payments before the error was discovered.

Remember, there are several different routes you can go to shake off debt problems.

What it all boils down to, says Gormley, is that "the consumer has to do the best job of determining the right choice, because he or she shouldn't get plugged into the wrong answer."