Debt Relief, How to Tell the Good Guys from the Bad Guys

Recent news that a payment processing company agreed to pay more than $1 million to settle a Federal Trade Commission (FTC) complaint is a reminder to all of us to be careful when considering companies or organizations that say they will help you reduce your debt. There are legitimate organizations that will help you, but it can be difficult to tell the difference between a legitimate service and a scam without gathering some information up front.

First, check out any business with the Better Business Bureau. This does not guarantee that there will be no problems, but it is a good place to start collecting that information.

Second, check to be sure the organization is registered to do business in your state. Again, this doesn’t ensure the level of service that you will receive, but it does mean the organization is following basic rules.

Third, ask about the companies fees. IRN Payment Systems, one of the companies in the FTC’s complaint, accepted funds on behalf of Innovative Wealth Builders (IWB), a company that promised to help customers reduce credit card interest, but often did little more than send worksheets showing how much customers could save by paying more than the minimum monthly payment. That’s hardly worth anything, especially since credit card companies are required to provide the same information in their bills.

Finally, ask the service is accredited by the National Foundation for Credit Counselor or the Association of Independent Consumer Credit Counseling Agencies. Both accreditation agencies require that the credit counselors are certified by an independent agency.

IWB charged between $500 and $2,000 in upfront costs for its service.

A non-profit credit counseling service like American Financial Solutions (AFS) is an example of an agency that will likely be able to help. Some services, such as educating consumers about ways to budget and address credit issues and credit report reviews are free.

One of the options a credit counseling service can offer is a debt management plan. In such a plan you would pay all your credit bills in one monthly payment and that payment is sent to AFS. AFS would works with creditors to lower interest rates, stop collection calls and bring accounts back to a current status. AFS sends the payments to each of your creditors.  

Creditors may be more willing to extend these benefits through a credit counseling agency, because they know the individual is also receiving counseling on successfully managing their finances. You have a counselor to help you every step of the way as you become debt free.

There may be a set-up fee for the debt management plan. The amount is based on the rules in each state (never more than $75). This is much less than what the companies targeted by the FTC charged. There would also be a monthly maintenance fee (maximum of $50). Overall, your monthly expenses for your unsecured debt would be within your budget. The goal is to help you pay off debts much faster than you are on pace to do now.

One of the most important points to make about legitimate credit counseling and debt management services is that no one is turned away because of their inability to pay the maintenance or set-up fees. Your counselor works with you to come up with the best plan for your situation.

The FTC agreed to accept $1.1 million from IRN Payment Systems for its role in facilitating a scam against consumers. In this case IRN wasn’t even the company orchestrating the scam, it was merely processing the payments.

Another company, National Card Monitor, called consumers and promised the company could get low-interest-rate credit cards for its customers to which they could then transfer balances from higher interest cards. They charged around $500 to do it and didn’t deliver as promised. Both companies were also accused of not handing out promised refunds.

It is hard not to let the fact that some companies are being punished by the federal government dissuade you from seeking help for your financial situation. Just make sure you do your homework, read the company’s reviews and don’t be pressured into joining a program you are not certain will work for you.