Financial Planning for September 2004

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Eliminate Credit Card Debt?
(Read the Fine Print)
It seems as though you can’t turn on TV, listen to the radio or check your e-mail these days without being accosted by ads promising to save you from the credit card/consumer debt monster. Getting ready for work, I saw two, maybe three, advertisements of happy customers who can now sleep at night from one "debt counseling" company. On the way to work, I was told several times by my local talk radio station that I could achieve significant savings by using another company to help me fix my debt problems, if my debt was $10,000 or more. I won’t even tell you how many times I hit the delete key in my e-mail program.

Of course, I don’t need the services of any of these companies, but I thought I would check into the general track record of the non-profit, and for profit, debt-counseling companies. What I found was interesting.

For instance, the Internal Revenue Service, Federal Trade Commission, and state regulators issued a warning in October 2003 (IRS 2003-120) warning consumers to be wary of credit counseling services, especially not-for-profit services. It seemed in 2003 that there were numerous not-for-profit organizations purporting to offer help in consolidating and paying off debt, along with debt counseling, that really were designed to make a fortune for their owners, not perform a needed service.

The good news is the IRS, FTC and state regulators were going after these phonies that gouged consumers and gave reputable companies a bad name. The bad news is shutting down disreputable companies will take a long time; time many consumers don’t have. That makes it incumbent on consumers to make sure they work with reputable companies at the outset.

So how do you know if you are dealing with a good company? Let’s talk.

The first thing you need to remember is just because a company says it is a not-for-profit organization does not mean it is a charitable organization. The filing requirements to receive the initial tax exemption aren’t that onerous and the IRS doesn’t have the resources to verify everything on the application. Therefore, you have to investigate the reputation of a potential vendor to make sure the vendor is reliable.

You can check on a vendor in several ways. First, go to their website and see what they claim there services will be. If they don’t offer credit counseling and education on managing your finances better, then there’s a good chance the company is not really a not-for-profit organization. To obtain the not-for-profit status, the organization must be formed for an education, religious or charitable purpose.

Obtain a copy of the company’s contract and read every single word. "The fine print" hasn’t received its negative reputation for no reason. Many times, there will be disclaimers of liability, contract clauses dealing with late payments or other provisions that can jump up and bite you if you aren’t careful.

Check the fee structure and how much of your payment goes to the payment of fees. In general, you should look for a $50 set-up fee and a $25 monthly processing fee. In the case of not-for-profit companies, they will try to tell you these are "donations." Don’t believe them; these are fees that are not deductible on your return later on.

Check the guarantees in the contract. Does the "counselor" represent you can get bad records (legitimate bad records) off your credit history? If there is such a representation, head for the hills. By law, this is an illegal representation.

Touch base with your creditors. Tell them what you are about to do (i.e. work with a debt counselor). Make sure the creditors will be willing to work with the counselor. Ask if they know of any reason to avoid a particular counselor. You may even find that you can negotiate with the creditor as well as the counselor can. What a savings you could achieve.

If you do decide to go with a counselor, also known as a debt consolidator, follow up. Make sure the payments are made on time to the creditor. Don’t rely on the counselor’s representations, because there are some scams where the consolidator receives the money and never pays the creditor. Also be aware that you may find your credit report flagged showing you are with a consolidator. This is not good, as many companies will use this to deny you credit. Therefore, it may sometimes be advantageous to work things out with your creditors on your own.


Getting into debt is easy and getting out can be very difficult. Are you struggling with a heavy debt burden or just looking for some help in budgeting? Give us a call and let’s talk. We may be able to help you stay away from debt consolidators. While we won’t be able to erase legitimate bad news from your credit report, we can help you devise a plan to pay the debt off and to avoid a similar situation in the future.

Until October, have a tremendous September.


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