Consumer Beware: Credit Counseling Services Are Not Miracle Workers

Agruss Law Firm - People, First

Agruss Law Firm - People, First

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Debt is an American epidemic. By the end of last year, American household debt had reached a new record high of $13.54 trillion. According to the Urban Institute, a think tank based in Washington, D.C., 71 million Americans have reports of debt in collections on their credit files.

To those in debt, a credit counseling service can seem like a godsend. Credit counseling services use a variety of tools to assist debtors, including education, debt-management plans, one-on-one coaching, and workshops. Julie Kalkowski, executive director of the Financial Hope Collaborative, an organization based in Omaha, Nebraska which provides financial counseling and education to single mothers, explains that “The number one goal is to leave people in a better financial situation.”

While many credit counseling agencies, such as the National Foundation for Credit Counseling (NFCC), are accredited nonprofits, other agencies are run for profit and may use questionable or unscrupulous tactics. Instead of helping, these agencies may push people deeper into debt.

According to Drew Kellerman, founder of Phase 2 Wealth Advisors, people should be leery of agencies that seem to offer miracles. “What gets people in trouble is they are looking for a quick, easy fix,” he explained. “If it's legitimate, it's not going to be a quick fix.”

To avoid being taken advantage of, it is important to know what to expect from a legitimate credit counseling service. Nonprofits often offer a combination of paid and free services. Consultations, workshops on understanding your finances, and sessions to help you with your budgets may be offered at no cost. Debt management plans—where the agency proactively assists you as you navigate your way out of debt—typically have a monthly fee of between $20 and $40 in addition to a one-time fee of $30 to $40.

When enrolled in a debt management plan, the participant typically sends the agency a payment every month, which the agency then passes on to the participant’s creditors. The agency will work with creditors to waive fees and negotiate lower rates. They may also help consumers dispute credit report errors.

Credit Counseling Services don’t offer any services not already available to consumers. Attempting to negotiate with creditors and navigate your way through debt, however, can be time-consuming and stressful. A good agency will be experienced in negotiating creditors and so may be able to get a better deal. “If you find a good one [i.e., credit counseling agency], they are worth more than they charge,” said Kyle Winkfield, president of Finley Alexander Wealth Management.

Unscrupulous agencies, on the other hand, may insist on having access to your bank account or demand payment before services have begun. It may also be unclear how much of your payment goes toward paying off your debt and how much the agency absorbs.

Untrustworthy agencies often encourage clients to challenge a legitimate debt on their credit report in order to provide a short-term boost to their rating. As well as being unethical, in some states challenging legitimate debt is illegal. These unprincipled credit counseling agencies may also pay someone with good credit to add themselves as an authorized user to the client’s credit card. While this may not be illegal, it is not safe and may violate the card issuer’s terms of service.

“A lot of these people are so nice,” says Kalkowski of the reprobate agencies, but she warns, “These people are not your friends. They are out to make a buck.”

Agruss Law Firm LLC
Founding attorney Michael Agruss and his passionate team of attorneys help protect consumers from debt collection harassment, robocalls, and credit report problems. Michael and his team understand that when you are being harassed by a debt collector, you are going through a frustrating period of your life. Whether the debt collection agency won’t stop calling you about a debt you don’t owe, you are being harassed at work, or the debt collector will not stop robocalling your phone even after you tell them to stop, Michael and his team are there for you. We’re not just lawyers, and you’re not just a client. We’re friends, neighbors, family. We’re all people. And here at Agruss, we put people first.

For more information, contact:
Michael Agruss
Agruss Law Firm LLC
4809 N Ravenswood Ave #419
Chicago, IL 60640

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