Credit 101 : Credit Counselors and Debt Consolidators (Page 3 of 3)
Congress has also investigated the credit counseling industry and has issued a report that says while some agencies are ethical, others charge excessive fees and provide poor service to consumers. The report also states that NFCC member guidelines, if applied to the entire industry, would go a long way toward eliminating the abuses they have uncovered in other parts of the industry.
When it comes to debt consolidation companies, you are talking about an entirely different concept. What a debt consolidation company does is negotiate with creditors to get a lower pay-off amount for your debts and then obtain a loan on your behalf to pay off those creditors allowing you to make just one payment instead of multiple ones.
The two types of companies are similar in nature, but with debt consolidation, the only thing they do is negotiate with credit lenders and then get you one payment instead of many. They do charge a fee for their services as well just as the credit counseling companies do.
The thing about debt consolidation companies is that they do what you can do yourself with just a little bit of work. You can call your creditors and negotiate a pay-off balance for your accounts and then obtain your own loan as a debt consolidation loan. Even if you have less than perfect credit, most banks and lending institutions will have debt consolidation loans available to almost everyone.
Really, the bottom line when considering either a debt consolidation company or a credit counselor is to weight the advantages and disadvantages first. Then check out the company you are considering to make sure they are reputable.
These types of companies can really and truly help people who are seriously in debt. But proceed with caution and choose wisely lest you get yourself involved in yet another problem besides your debt!
Now that we've addressed no credit, bad credit, and people who can help with credit problems, let's focus on your credit report and your credit score. Often, there are mistakes that are on your credit report, and correcting them is essential
The FTC has received over 8,000 complaints from consumers about shady credit counselors. Many of those complaints concern high or hidden fees along with the inability to opt out of so-called "voluntary" contributions. The Better Business Bureau also reports high complaint levels about credit counseling.
Not surprisingly, the IRS has also weighed in on the subject of credit counseling and has denied non-profit, tax-exempt status to around thirty of the nation's 1,000 credit counseling agencies. Those thirty agencies account for more than half of the industry's revenue. Audits of non-profit 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 on whether or not a tax exempt credit counselor actually performed their mandated mission by assisting the community at large as opposed to offering their whole attention to their own DMP customers in a "collection practice". However, that has yet to be proven.
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