Why Most Credit Counseling Plans Are BAd?

Fees Fees Fees

In the past, credit counseling agencies charged little or no fees to consumers enrolling in debt management plans (DMPs). This was mainly because of a creditor policy known as Fair Share through which creditors voluntarily returned to the agency a set percentage of the funds that were disbursed to them. As creditors have cut back on Fair Share payments, most agencies have been charging consumers higher fees. Some agencies charge as much as a full month’s consolidated payment simply to establish an account. In several newspaper articles, disgruntled customers said this fee was not made clear until they had sent in their first monthly payment and learned none had gone to creditors.

A U.S. News and World Report article described another common complaint: "But after three months in AmeriDebt's program, the man was $900 deeper in the red. AmeriDebt, he says, failed to pay his creditors on time, generating late fees and other penalties." (June 17, 2002)

The newer credit counseling agencies have pioneered more business-like methods of making debt management plans convenient for consumers, including flexible hours, phone and Internet counseling, and electronic payments. These improvements, in turn, have forced the “old guard” to be more responsive to their clients. Some of these newer agencies are responsible, effective and sensitive to their client’s needs. However, as the newer agencies have gained market share, a number of serious problems have surfaced as well. Common problems associated with many agencies include:

• Lack of face-to-face or individualized contact with consumers.

• Nothing but DMPs. The trend is away from providing a range of services such as consumer education and counseling for non-DMP clients and towards offering DMP-related services only.

• Aggressive and sometimes deceptive marketing tactics.

• Higher costs for services.

• Close connections to for-profit businesses.

Your Credit Report Will Suffer

It is important to keep in mind that the words "Managed by Credit Counseling Company" will appear under each account on your credit report that is involved in the DMP. This is industry code-speak for "High Credit Risk."

Learn about the warning signs consumers should watch out for with credit counseling companies >>

 

Disclaimer: The information provided in this site is not legal advice. All information is general information, some of which pertains to legal issues involved in the subject matter. Credit Matters Inc. is not a law firm and is not a substitute for an attorney or law firm. Your access to and use of this site is subject to additional terms and conditions.

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