Credit Counseling Services


You are deeply in debt and desperate. You've seen all the television ads from services that promise to help you, and you've also been approached by a company that assures you it can painlessly make your debts go away. Is this too good to be true? Often, the answer is yes. You are thinking of entering a world that's fraught with fraud, misrepresentation and controversy. Debt counseling has become a $7 billion industry, but not all the players are legitimate.

The best credit counseling can help people who are behind on their debts get back on their feet. Fly-by-night outfits can disappear with your money, and what remains of your credit rating. In between the two are a whole fleet of operators who may or may not leave you better off than you are now.

A decade ago the industry was dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind. Today you can find the Consumer Credit Counseling Service in just about any city.

But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names. Some do a good job of negotiating repayment plans. Others charge fat upfront fees, pay their executives even fatter salaries and pocket much of the money that could be going to pay off creditors. An increasing number target people who aren't even late on their payments, but who are simply disgruntled about their interest rates.

The worst aren't credit counselors at all. Usually billing themselves as specialists in "debt settlement," they promise to help you get rid of your debts for pennies on the dollar -- after you pay an upfront fee that can be $3,000 or more. Typically, by the time I hear about these companies, they've already absconded with people's cash, disconnected their phones and set up shop somewhere new with a different name.

Obviously, all these outfits are finding plenty of eager customers. Americans' debt loads have been running at record levels, and bankruptcies are high. It's hard to get an accurate bead on how many people signed up for debt repayment plans through credit-counseling services. Of those in debt repayment plans, said Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counseling, about half were expected to successfully complete their plans. The other half were expected to drop out, with some of those filing for bankruptcy.

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