Top Ten Signs Your Debt Consolidation Company Is Trying to Bankrupt You

[Mar 20, 2009.]

 

Americans who once thought that open lines of credit were as good as money in the bank have been getting some rude awakenings. Applications for emergency lines of credit for medical bills are going up, while credit card companies are shrinking available credit limits, even for their best customers. Many of us may seek help from credit counseling agencies or from debt consolidation firms. However, it’s easy for scam artists or fly-by-night operations to set up shop long enough to rob you of your cash. Be wary when a prospective debt consolidation firm shows any of these ten warning signs:

Your debt consolidation company insists that you complete a detailed application and profile before your initial meeting. Scam artists may want to know how much cash and credit you can access before taking you further into their scheme. Legitimate credit counselors don’t engage in “pre-screening.”

Your debt counselor insists on creating a credit card debt reduction plan without assessing your full situation or investigating alternatives. Debt consolidation is almost always a “last ditch” effort. Legitimate credit counselors will help you explore ways to manage your debt with your current resources.

Your debt consolidation company won’t put anything in writing. A real debt consolidator will give you specific guidelines, contracts, and details of their plans, policies, and procedures. If your debt counselor wants to wrap everything up on a quick phone call, they’re probably in it for your money.

Your debt consolidation company doesn’t know how long it will take for you to get out of debt. Legitimate credit counselors and debt consolidators can show you sophisticated amortization tables of their proposed payment solutions.

Your debt counselor can’t produce documentation of his or her accreditation. The NFCC keeps local credit counseling agencies honest by conducting routine audits of members.

Your debt counselor wants to get paid first. Legitimate credit counseling agencies pay their own bills through donations made by credit card issuers and other vendors. For example, your bank may pay your debt consolidation agency as much as 15% of their recovered balance in exchange for facilitating your payment. Accredited agencies may request a donation, but shouldn’t require an upfront fee.

Your debt consolidation company mingles your money with its own. Accredited debt consolidation firms that facilitate client payments must maintain client trust accounts separate from their operating accounts. Your counseling agency can’t pay your bills if it can’t pay its own.

Your debt counselor makes it sound like your financial problems will be fixed overnight. Nobody gets out of debt overnight without the help of a winning lottery ticket. Outrageous claims may generate phone calls, but they usually signal a scam.

The IRS has never heard of your debt consolidation company. Legitimate debt consolidation firms must make special public filings to the IRS and to other government agencies. If your credit counselor has been in business for over a year, you should be able to find evidence of these forms online.

Your debt consolidation can’t produce real case studies from actual former clients. NFCC member agencies are required to back up any claims made in advertisements or in agency literature. If they can’t give you the name and phone number of the client who shaved his bills in half, they probably shouldn’t be handling your case.

All ten of these early warning signs for bad debt counselors and consolidation companies come directly from the membership guidelines of the National Foundation for Credit Counseling. The NFCC does more than refer consumers to local debt counselors, it maintains quality standards within the credit counseling and debt consolidation community. Ensure that your debt counselor maintains active membership with the NFCC before entrusting them with your personal information or, more importantly, your cash.

 

About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.