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Reality Check: The Truth About Credit Counsiling Services
August 13, 1998
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Dear Ben: I've been a bad girl this year and now I'm in pretty deep with credit card debt. Right now I'm current with all of my creditors, but am starting to realize that I'm not making any progress reducing the enormous balances. I'm thinking about visiting a credit counseling service and asking them to help me out of this mess. What do you think?
--Drowning in Plastic!
Dear Drowning: I'm glad you're choosing to attack your problem early in the debt game. The credit card companies win be difficult to deal with as long as you remain current; normally, they usually won't be willing to deal with you until you've fallen at least 60-90 days behind.
But you also need to know how the credit counseling agencies make their money. While many of these agencies position themselves as nonprofit angels ready to help consumers through difficult financial times, the fact is that they receive a voluntary commission, anywhere from 10 to 15 percent of the monies they collect on behalf of your creditors. It can add up to big business: Consumer Credit Counseling Service of Greater Dallas collected more than $103 million last year on behalf of its 21,500 consumer-clients. The bottom line? Credit counseling companies are almost always working for the creditor, making them a "friendly" third-party debt collector.
You must be aware of and consider this before you tell them all of your financial secrets: These companies rarely give you your "Miranda" rights as the police do, putting you on notice that anything you disclose to them could possibly be used against you in a collection action. Furthermore, don't forget that their motivation is to collect money on behalf of your creditors, since that's who pays them. Their No. 1 concern is getting your money, albeit in a much kinder and gentler manner than the run-of-the-mill, third-party debt collection agent. And in almost every case, credit counselors rarely care how a restructured payment schedule impacts your credit report after the fact.
Creditors will work with consumers, but, you've got to make them understand that you know how the game is played and, frankly, it all gets back to the Golden Rule: "He who has the gold, rules." Repay your creditors, but make them understand that they're going to have to work with you and be willing to remove any negative information from your credit reports after you've completed re-paying them, or it's no deal! You've got to be willing to play a little hardball if necessary. Make sure you receive a letter agreeing to these revised terms before you send them a dime.
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