The Consumers' Guide to Credit Counseling
Credit counselors are falling all over themselves to help you out of debt, but some do more harm than good. Here’s what you need to know, including whether you need it and the red flags for ripoffs.

 By Liz Pulliam Weston, MSN Money

Randy is deeply in debt and desperate. He’s seen all the television ads from credit counseling services that promise to help him, and he’s also been approached by a company that assures him it can painlessly make his debts go away. Is this, he asked me in an e-mail, too good to be true? Often, the answer is yes.

Randy’s 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.

The morphing world of credit counseling
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.

Who needs credit counseling?
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 replayment 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.

Typically, counseling services negotiate lower payments with credit-card companies and other lenders, then make the payments using a check or electronic funds transfer sent to them by the consumer each month.

Most of the counseling services’ fees are paid by the lenders themselves, which send back to the services a portion of the payments received. This has led some critics to charge that credit counseling is just a tool of the lending industry.

The payment system, known as "fair share," has certainly encouraged the growth of credit counseling services. And some agencies, driven by competition, are now openly courting

For more information, contact:
Hal or Jean Ward
Coldwell Banker Preferred Properties
Richfield, Utah
435-896-5887