I was driving into work today and heard a radio
advertisement that upset me and reinforced in my mind the reason I wrote my
book. That ad from a debt relief company claimed that the new credit card
legislation required lenders to reduce your credit card debt to 50% of what you
While the new legislation does prevent some of the more
unfair practices in credit card companies' policies, nothing in the legislation
will force credit card companies to reduce what we owe them. The Bucks blog on the NY Times has an excellent break-down on
what the new legislation actually says.
The advertisement reinforced the dangers that we may face
when we hire a debt relief agency to help us with our debts. If they are
offering false promises trying to get our business, are they really going to
follow through on their promises when they have our business?
As emphasized in The Road Out of Debt, you have to protect
yourself when entering to a relationship with a credit counselor or debt relief
company. The 3 most important things to watch for are:
1. Did they take the time to understand your
A financial counselor needs to understand your entire
financial picture so he or she can give you advice on what you can afford going
forward. The counselor must take at least an hour to give you advice that will
work for your unique situation. If all that counselor does is to take twenty
minutes to get the names and addresses of your creditors and immediately seeks
to put you into a payment plan, he or she is more likely concerned about their
commissions or profits rather than your financial well being.
2. Do you pay a reasonable upfront fee?
You should only have to pay between $40-80 for the
initial consultation and $25-50 dollars for a monthly fee. Big upfront or
monthly fees and requests for donations or tips are sure signs that taking
money from you is their primary goal. Take your business elsewhere if the fees
are large no matter what decrease in your payments and balances you are
3. Are payments being made to your creditors
Most importantly, follow up with your creditors to make
sure that your creditors are being paid as promised. If they are not receiving
payments, you will have bigger problems down the road and are throwing away
money to the debt relief company. Stop all payments to the debt relief company
and contact you state's attorney general.
Always keep watchful eyes on anyone handling your money.
If the company you hire fails any of the 3 items on the watch list, get away
from them immediately.
In addition, keep in mind, each payment you make pays the
counselors as well as your debts. This is additional money that you could be
using to pay your creditors. Before thinking someone else can do it for you,
perhaps you should try to handle them yourself. You then won't have worry
whether your debt relief company is doing what it should be doing and you may
save yourself some money.
Read more articles about consumer debt by Ted
Connolly, co-author of The Road Out of Debt