All your debt relief needs in one convenient place

How’d you like to lower your monthly credit card and loan payments — guaranteed? It’s an offer that sounds mighty appealing to anyone struggling to pay their bills. A growing number of companies across the country claim they can do this by either lowering your interest rate or reducing the amount you owe.

But beware! Some of these debt relief programs are scams run by con artists who can’t deliver on their promises. If you fall for their pitch, you could lose hundreds of dollars in fees and find yourself in worse financial shape. You’ll owe just as much as when you started, plus have additional late fees and other penalties to pay.

Carol in North Carolina was willing to share her personal horror story with me as long as I did not use her last name. It started with a phone call from a debt management company. The representative told Carol she could get her creditors to lower their interest rates. This would let Carol pay off her credit card, mortgage and car loan debt three to five times faster.

“She specifically told me that I would save at least $2,500 in a very short time and would likely save much more,” Carol states in her declaration to the Federal Trade Commission.

Carol was skeptical, especially when she heard the price was $499. But the salesperson assured Carol she would see lower interest rates within the first 30 days of the program and that these savings would more than cover the fee.

“She spoke with such confidence and zeal that I was moved to tears,” Carol says. “I was thrilled and full of hope to know that I would finally be able to pay off my debts.”

But it didn’t turn out that way. Despite repeated attempts, Carol’s “financial consultants” could not lower the rates on any of her credit cards. The company will not refund Carol’s $499 fee as promised. The Federal Trade Commission has sued the firm.

A widespread problem
In the last few years, the Federal Trade Commission has sued more than dozen debt relief companies. “They simply lie to consumers,” says the FTC’s Alice Hrdy.

FTC ad IRS investigators have also found some counseling services that claim to be non-profit when they are actually a for-profit company. The non-profit pitch can make a potential client feel confident about signing up for the service. “They’re preying on the consumer’s trust,” Hrdy says.

Some of the bad apples in this industry mislead people about their charges. “They either say there are no fees involved or just a small fee,” Hrdy explains. Sometimes, they don’t mention fees at all.

Bruce, who lives near Seattle, signed up with a company that promised to lower his interest rates. He was told to send them a check for $265.

“It was my clear understanding that money was going to pay off my credit card bills,” Bruce told me. It turned out to be a “referral fee” to find him a company that would supposedly help him.

“It was a nasty experience,” Bruce says. “They basically stole my money.”

Warning: Debt settlement programs
Some companies now claim they can negotiate a one-time settlement with all of your creditors that will reduce your principal by as much as 50 to 70 percent. By doing this, they say, your monthly payments will drop dramatically.

“That is virtually impossible under any circumstances,” says Travis Plunkett, Legislative Director of the Consumer Federation of America. That’s why CFA warns consumers not to use debt settlement programs. “They are promising something they can’t deliver,” Plunkett says.

Credit counselors — a better option
Charles Helms, president of Consumer Counseling Northwest, sees a lot of people who have been burned by these phony debt relief programs. “It’s horrible,” he says. Because most of them have a large up-front fee, they’ll take anyone who can pay.

“Their goal is to get you to sign up, not to successfully complete the program,” Helms says. “So here’s someone who is financially damaged to begin with and then these companies just go out and take the last of their resources and kill any hope they have of getting out of that situation.”

With a legitimate credit counselor, there is no right answer for everyone. They sit down with you and give you a free and objective assessment of your financial situation. At Credit Counseling Northwest, they saw 6,000 people last year and found that debt management was the right option for only 19 percent of them. The rest were given a plan to work things out on their own.

With a customized consolidated payment plan you should be able to pay off your credit card debt in 3 to 5 years. You write the counseling agency one check each month and they pay all your creditors.

Do your homework
Facing mounting bills can be frightening, but getting debt relief is not a decision that should be based on hearing a radio commercial or getting a sales call. You want to find an organization that will design a debt relief plan specifically for you.

Shop around. Compare a couple of services and get a feel for how they operate. The credit counselor should spend at least 20 to 30 minutes with you in order to get a complete picture of your finances. If they don’t do that, you’re not really getting any counseling.

Ask a lot of questions and get those answers in writing. Find out about the fees. The Consumer Federation of America says you shouldn’t pay more than $50 for the set-up fee and no more than a $25 monthly maintenance fee. If the agency is vague or reluctant to talk about fees, go someplace else.

Don’t rely on names or the claim of a non-profit status. Check them out with the Better Business Bureau or your local consumer protection office.

By doing your homework you should be able to find a service that doesn’t over-charge or over-promise.

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For most individuals, whether they should file for bankruptcy is one of the most serious financial decisions they can make. Consequently, that decision should be made only after knowing what the bankruptcy process entails, the consequences of filing for bankruptcy, and the available alternatives to filing for bankruptcy. The pre-filing counseling session will enable consumers to fully understand the potential advantages, disadvantages of, and alternatives to, declaring bankruptcy before taking action.

The NFCC believes that helping consumers to fully understand the implications of bankruptcy and the possible alternatives will enable them to make an informed decision about whether bankruptcy is the best option for their specific financial circumstances.

Individuals filing for bankruptcy under Chapter 7 or Chapter 13, will be required to participate in a pre-bankruptcy filing counseling session with an approved nonprofit budget and credit counseling agency within six months of filing. The agency providing the session must be approved by the Executive Office for U.S. Trustees (EOUST). (Agencies located in North Carolina or Alabama must be approved by the local Bankruptcy Administrator).

Consumers who receive pre-filing counseling with an NFCC Member Agency can expect:

• Estimated length: A counseling session of approximately 90 minutes.
• Content: The session will include an overview of the bankruptcy process; a discussion of possible alternatives to bankruptcy, including their advantages and disadvantages; and a personalized budget analysis. The session also will include a discussion of the circumstances that led the consumer into financial difficulty.
• Format: Counseling can be face-to-face, over the phone, or via Internet.

Consumers will receive a certificate indicating that they completed the counseling session. Should they decide to file for bankruptcy, they will have to include the certificate in the filing with their bankruptcy petition.

Before a bankruptcy is finalized and debts can be discharged, consumers will be required to complete a pre-discharge financial education course from an EOUST (or Bankruptcy Administrator) approved agency.

The NFCC believes that the pre-discharge financial management educational course will provide more Americans than ever before with the financial know-how they need to manage their money, keep their personal finances in order and reduce the chance of future financial problems.

Here’s what you can expect from the pre-discharge education:

• Estimated course length: 2 hours
• Content: NFCC Members approved to provide the pre-discharge financial education course will address financial literacy issues that will arm individuals with the tools to prevent future financial problems. Among key topics: rebuilding finances after bankruptcy, developing and following a budget, understanding and using credit, “predatory lending” and identity theft.
• Format: Face-to-face, over the phone, or via Internet.

Certificate of completion – Consumers will be given a certificate verifying completion of the course, and will have to file that certificate with the Bankruptcy Court in order to have their debts discharged.

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America is lush with consumer options and that freedom of choice can land shoppers in trouble. According to Money Central on MSN:

* About 43 percent of American families spend more than they earn each year.
* Average households carry about $8,000 in credit card debt.
* Personal bankruptcies have doubled in the past decade.

If you are part of the debt demographic, you are not alone and there are plenty of resources available to help you in your time of need. One such option is a debt reduction company. For a fee, these businesses will help consumers with debt negotiation, debt consolidation, finance advice and other types of help necessary for getting out of a financial hole. For those who are already in debt, the thought of handing out another dime to improve the situation may not sit well. Before you put your trust into a debt reduction company there are steps you need to take yourself:

* Build a Budget: The paid professionals are going to ask you for your expenses versus your income and then analyze where you can cut corners. Save the time and figure out where you’re bleeding cash yourself.
* Organize Your Debt: Instead of tossing aside the past due bills, you need to look at the situation at hand. Organize by necessity, due date and interest rates. Prioritize to keep your lights on and food on the table.
* Credit Card Debt: One service offered by debt reduction companies is negotiating with your credit card company. Once you gain the upper hand on your budget and know how much money you can afford to pay, give your card issuer a call, calmly explain your situation and make them an offer on the existing debt. Honestly, that is what the paid guys will do.
* Find Free Help: The web is ripe with plenty of reliable advice on how to reduce debt so you can gain the upper hand. Public libraries have computers so you can conduct your search for free.

If you have tried all the above and still cannot solve your debt crisis, now is the time to consider a debt reduction company. Wondering if you can trust them in advance to providing them with all your most confidential financial information is the wise move. The great news is that there are plenty of debt reduction companies from which you can choose and trust. It will be up to you to conduct your due diligence on the matter and the Better Business Bureau, friends and the web can all help you find an appropriate resource to use.

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Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that permits you to obtain a discharge of your obligation to pay certain debts. The bankruptcy laws are intended to allow an honest but unfortunate debtor an opportunity to get a “fresh start.”

But bankruptcy is not a free ride. Depending on your personal situation and the laws of your state, you may have to liquidate some of your property and assets. A bankruptcy filing will become part of your credit report for 10 years and will make it more difficult and more expensive to obtain new credit. It may be more difficult to rent an apartment, buy or rent a car, or even buy insurance, because you will be considered a higher risk in any transaction that involves credit or requires you to make a regular series of future payments. There is a good chance that your credit cards will be cancelled if you file for bankruptcy, which may complicate otherwise routine transactions that require a credit card for a deposit or as a form of security. And, because bankruptcy is a matter of public record, you have to consider whether it might carry a stigma in your community or interfere with employment prospects in your chosen field.

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