OUR PROGRAM | BANKRUPTCY | CREDIT COUNSELING | DEBT CONSOLIDATION | MINIMUM PAYMENTS
Is Credit Counseling A Good Option?
The main problem with Consumer Credit Counseling organizations is that they are actually working for your creditors! This may seem unbelievable, but it is true - and it is why you end up paying about two to three times more money to pay off your debts in Credit Counseling than in our "Debt Settlement Program." Most Consumer Credit Counseling firm's claim non-profit status and pretend to be independent. But in fact, these non-profits are funded and supported by the very people you owe money to; the credit card companies. That is why Consumer Credit Counseling companies do not negotiate your debts down. They merely try to come up with a plan to make sure you keep paying your credit card bills every single month. They want to force consumers to pay as much money as possible to your creditors. Sure, they may help lower your interest rate a few points, or eliminate a late payment or two, but the credit card companies are happy to do this when they know you are going to keep making payments that we could have negotiated away for pennies on the dollar.
Additionally, since you are repaying 100% of your debt balance plus interest charges (even after they are reduced by Consumer Credit Counseling), you could be in a Consumer Credit Counseling program for 5 years! Compare that to 2-3 years in our program.
In our program you can be out of debt twice as fast and for about 30-50% of what you'd be paying into a Credit Counseling Program. Why not become debt free as soon as possible, as opposed to being stuck in a consumer credit counseling program for several more years. Once you learn about the alternatives, the decision becomes easy for our clients to choose our Debt Settlement Program.
Furthermore, most Consumer Credit Counseling companies require you to make all of your payments to them and then they pay off your creditors. Recently, state Attorney Generals have sued some of the largest Consumer Credit Counseling firms because they were not actually passing on all the money they get to the credit card companies, they were keeping it themselves! In fact, the IRS has recently stopped granting non-profit status to credit counseling firms.
We receive no payments from your creditors and we work 100% for you. Call us or complete our short online request form today!
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History of credit counseling
The first credit counseling agencies were created in 1951 in the United States when credit grantors created The National Foundation for Credit Counseling, or NFCC. Their stated objective was to promote financial literacy and help consumers avoid bankruptcy.
In 1993, the “Association of Independent Consumer Credit Counseling Agencies,” or AICCCA, was founded, citing a need for “industry-wide standards of excellence and ethical conduct.” This formally organized the NFCC’s competition. The AICCCA was formed from the group of counselors who favored telephone delivery of debt management programs. The NFCC was, in the beginning, strongly opposed to this telephone business model, primarily favoring face-to-face counseling as a more effective solution. Eventually, all organizations practiced both phone and face-to-face processes with some agencies using large inbound call centers driven by mass media advertising.
The credit counseling industry’s third major trade organization is its largest: the American Association of Debt Management Organizations, or AADMO.
However, not all credit counseling agencies belong to a trade organization, nor are they required to do so; there are well over 1,000 active credit counseling organizations in the United States.
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made credit counseling a requirement for consumer debtors filing for Bankruptcy in the United States. In order to meet this requirement, during the 180-day period preceding the filing of bankruptcy, the debtor must complete a program with an approved nonprofit budget and credit counseling agency. Such a program may include, but is not limited to, one counseling session conducted by phone or over the internet.
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Criticism of credit counseling
In the late 80’s and early 90’s, the number of credit and debt counseling agencies in America increased significantly. An antitrust lawsuit was filed against the NFCC, arguing that the presence of creditors on the NFCC’s Board of Directors constituted monopolistic practices. As a result of this litigation, creditors agreed to fund non-NFCC member agencies as well.
These sharp increases of credit counseling activity also created other, more serious issues in the industry. By the early 1990’s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors. This fee income, known as “Fair Share,” are contributions from the creditors that originally earned the agency 15% of the amount recovered. However, in recent years, Fair Share contributions have dwindled steadily, with contributions of 4-10% being the most common.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1,000 credit counseling agencies. Those 30 credit counseling agencies account for more than half of the industry's revenue. Further audits of nonprofit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees. The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers. The report also stated that NFCC member guidelines, if applied to the entire credit counseling industry, would go a long way toward eliminating the abuses they uncovered in some parts of the industry.
Other organizations have voiced criticisms of the credit counseling industry, often citing the Fair Share funding model as evidence that credit counselors serve the interests of the creditors over the interests of consumers, and that credit counselors are not forthcoming in speaking out about the actions of creditors for fear of losing what little funding remains. Credit counselors respond that their job is not to take sides but to negotiate with all parties equally to help successfully resolve debts. They further argue that the steady decline in Fair Share funding belies the notion that creditors are in control of the credit counseling industry.
Another common criticism of credit counseling is the assertion that participating in a Debt Management Plan will ruin a consumer’s credit. Fair Isaac Corporation, the company that pioneered the use of credit scores, states that participation in a Debt Management Plan has no effect on the FICO credit score. However it should be noted that a client active in a Debt Management Plan may not be able to get a loan or successfully obtain credit.
Given this criticism, the industry is likely to be changed forever in the immediate future as it is scrutinized by both the consumer and government regulators over how they will be paid for the services they perform. In meantime, there will be no shortage of debt-burdened consumers who will now be facing a burgeoning, and more traditional, collection industry.
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