It’s an unsettling feeling to know your credit could be holding you back from qualifying for a loan to buy that new car or home for you and your family. People are struggling. Debt is mounting and your credit score is paying the price.
BBB records report how consumers get caught up in debt negotiation as the scale of their income to debt ratio tips beyond the point of return. The consumer agrees to a debt negotiation program and begins setting money aside in an account through the company. The consumer is told to end contact with creditors – no letters, no calls and no payments. Once the consumer has paid enough money into the third party account, the debt negotiation squad is supposed to swoop in and negotiate with the creditors.
In many cases, that just didn’t happen. Creditors were left in the dark, consumers grew more confused, lower interest rates promised by the negotiator did not materialize and collection, attorney and court fees mounted.
Bottom Line
In the last month, your BBB received more than 6,000 inquires in regard to credit counseling services and debt negotiation. Here’s what you need to know to make an informed decision.
A credit counseling company will help and guide you through a budget if you are not disciplined enough to do it yourself. They may offer free educational materials and workshops. Their mission is to provide concrete assistance in consumer credit, debt and money management and budgeting. They help you devise a personalized plan for your financial position. They may help lower your interest rate. If your counselor advises you to enroll in a Debt Management Plan (DMP), you are probably deep in debt and the likelihood that you can repay those debts is small. The plan is not for everyone.
Debt negotiation or debt settlement is more serious yet. It requires you to stop paying your creditors and start paying a debt negotiation company. Consumers with larger unsecured debt may be candidates for this solution as an alternative to bankruptcy. The settlement company will approach creditors when sufficient funds have been deposited into an escrow account and attempt to negotiate the debt to a much lower number. Settlement companies know that many creditors are willing to get something as opposed to nothing toward the bad debt. But working through the debt negotiation process can take years. Creditors must each be tackled individually and the more there are, the more likely you are to encounter challenges, including lawsuits and determined debt collectors, along the way.
Before seeking outside help, BBB advises consumers to approach creditors directly and see if they might accept a modified plan to reduce monthly payments. If it’s too late or you need extra help, try credit counseling. Bankruptcy should be your last resort.
If debt collectors are contacting you look into the Fair Debt Collection Practices Act. This federal law stipulates how and when a collector may contact you. Calls before 8 a.m. and after 9 p.m. are against the law. Calls to your office are also out of bounds if they violate your employer’s policy and you have advised the company of your employer’s rules. Collection agencies may not harass, lie or use unreasonable tactics when trying to collect a debt. They must honor a written request from you to stop calling.
Check with your BBB for general advice on credit scoring, credit counseling and to find reports on consumer experience for specific companies at www.bbb.org. The Maryland Office of Financial Regulation regulates consumer finance companies and can be very helpful when you need to do your homework. It’s always a good idea verify licensing information and investigate any complaints through them by calling 410-230-6100 or visiting www.dllr.state.md.us/finance/.
BBB | Greater MD Tips
- Resist the urge to “act now.” Most of the offers will be there tomorrow.
- Get the company’s name, street address, phone number and verify that information through another source such as your phone book, BBB or the Office of Financial Regulation.
- Look out for high priced up-front or monthly fees for joining a credit counseling or Debt Management Plan
- Check with the National Foundation for Credit Counseling, http://www.nfcc.org and the Association of Independent Consumer Credit Counseling Agencies (AICCA), http://www.aiccca.org for companies that limit the charge for their services.
- Get all promises in writing and pay attention to the small print.
- Make sure the credit counselors are certified. Check with the Office of the Consumer Credit Counselors. www.usdoj.gov
- Review your credit score at www.annualcreditreport.com or call 877-322-8228 or to see Your Access to Free Credit Reports visit www.ftc.gov/credit
Been the victim of a scam - or nearly one? Email us at scamALERT@greatermd.bbb.org and tell us if you think you've identified a suspect company, web site, or tactic and we'll investigate. We may even share our findings with other readers here at scamALERT. BBB | Greater MD is a 501 (c) 6, not-for-profit organization serving Baltimore City and 18 counties including Frederick County, MD. For more information, visit www.bbb.org.