Americans in debt have a harder time re-paying their debt because of unscrupulous debt relief companies who offer to help, but only do more harm. The steps you should take before hiring a debt relief company.
Debt relief complaints
Debt relief is important, but often the subject of ripoffs.
These companies are known to take large up-front fees, but for-profit debt relief, settlement, negotiation and credit counseling companies won’t be able to take upfront fees under new rules from the Federal Trade Commission if they call consumers or the debt calls them in response to an ad.
FTC Chairman Jon Leibowitz said in a prepared statement, “Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy.”
New debt relief rules
In 2010, new debt relief rules took effect to better protect consumers.
Any company that solicits a customer over the phone can’t take fees UNTIL:
— the company renegotiates, settles, reduces, or changes the terms on at least one debt
— there is a written settlement or written agreement between the consumer and creditor detailing a debt management plan
— the consumer makes one payment to a creditor as part of the debt relief plan
Once a consumer begins making payments, they must go into a dedicated account or escrow of sorts. Five conditions must be met for this dedicated account and these include:
— an insured financial institution maintains the account
— the consumer owns the funds and accrues interest
— the consumer can take out money at any time without penalty
— the provider can’t have any affiliation with the company that holds and manages the account AND
— the provider doesn’t exchange referral fees with the company managing the account.
Consumers will also see more disclosures upfront like how much the service will cost, how long results will take, and information on the negative consequences of debt relief.
Free or low-cost help
There are free and low-cost ways to get help with debt. Make sure you are using an approved agency.
Apprisen Financial Advocates also known as Consumer Credit Counseling Services is a non-profit counseling agency that charges you minimal fees, and I mean minimal, to help you with your budget.
Apprisen offers a “Financial Stress Test” to see the degree to which your finances are stressed.
The National Foundation for Credit Counseling has some good tools to help you manage your expenses including a budget worksheet, and calculators for myriad of life scenarios like buying versus renting, figuring out how much home you can afford, and finding out how to save a million dollars, etc.
The best advice is to manage your money smartly. I know it’s difficult for some families who have experienced job loss and other financial hardships, but just don’t dig yourself further into debt. Live within your means, and pay cash until your finances are under control.