The Scam  

Every day, companies nationwide appeal to consumers with poor credit histories.  They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job.  The truth is, they can’t deliver.  After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money. (1)

Confession:  I did not write the above paragraph.  It was taken verbatim from FTC Facts for Consumers, a publication of the Federal Trade Commission (www.ftc.gov).

It’s a sad fact of life that when trouble strikes- a house fire, natural disaster, health problems, financial worries- there are always jerks and con artists ready to exploit your vulnerability in order to rip you off.

These days, trouble for many consumers is in the form of higher food and energy prices, lay-offs, falling home prices, and volatile financial markets.  It’s a recipe for a national epidemic of financial insecurity.

Add to this the fact that so many of us are maxed to the hilt with debt means that all it takes is a small setback, such as an unexpected medical bill, to push us over the edge and into severe financial distress. 

According to the Consumer Federation of America, Americans collectively owe $850 billion in credit card debt alone. That works out to about $17,000 for each of the 50 million households that do not pay their balances in full each month. 

Data from TransAmerica show that at the end of the second quarter, the number of consumers who had one or more credit cards in “delinquent” status (at least 90 days behind in payments) stood at 1.04%- up from .91% the year before.

In a sign that cash-strapped Americans are making more purchases using plastic, the average debt for credit card users jumped nearly 9% over the same 12-month period.

Traditionally, the advice given to consumers who feel they might not be able to meet their payments is, “Contact your lender to see if you can get a lower interest rate or re-negotiate the terms of your loan.”  Unfortunately, lenders are overwhelmed with requests from folks in the same boat.  And, according to Travis Plunkett, a spokesperson for the Consumer Federation of America (CFA), many are less lenient.

He claims over the past ten years, as consumers have accumulated more debt, “creditors have become less generous about reducing their interest rates or waiving fees.”

None-the-less, do not wait until you’re ready to throw in the towel to contact your lender because this gives you more time to work out a possible solution.  The American Bankers Association (ABA) says “more options are likely to be available when problems are addressed early…Ignoring the problem always makes it harder to resolve.”

Here are some ABA warning signs that you may be headed for trouble:

    -You can only afford to make the minimum payment each month

    - You’re constantly out of cash

    - It’s taking you longer and longer to pay off your balances

    - You are borrowing from one lender to pay another

Given today’s environment, consider taking a multi-pronged approach to solve your credit issues.  In addition to contacting your lender, consider enlisting the help of a credit counseling service.  Often, these organizations can negotiate with lenders on your behalf, as long as you agree to a budgeting plan.

Gerri Detweiler, author of several books on repairing your credit and dealing with debt collectors, says many consumers hesitate to use a credit counseling service for fear it will damage their credit rating.  But, as she points out, “If you have a lot of debt, your credit rating is already affected.  And if you get behind, it’s going to get worse.”

Unfortunately, at this time when many could desperately use the advice and assistance credit services claim to offer, some are more interested in lining their own pockets than in helping you.  “Sometimes when people get into debt trouble they panic and seize on an ad or recommendation from family or friends without thoroughly examining the agency they’re talking to,” says CFA’s Plunkett.  ”If they’re aggressively promoting that they could save you a lot of money on credit card bills, hang up.”

He adds that while the situation is better than it was 5 years ago, “the IRS has been investigating many of these companies because they claim to be non-profit when, in fact, they’re outright scams that take your money and then move to another market.”

The FTC Website has good advice on how to select a credit counseling service.  The first sign that you’re probably in the wrong place is if you’re asked to pay an up-front fee before they do anything for you.

Perhaps the safest way to find a legitimate, non-profit, credit counseling agency is by contacting the National Foundation of Credit Counseling (www.nfcc.org or 800-388-2227).  It has local affiliates in communities throughout the country.

Be careful of copy-cat organizations that may sound like non-profits; if their URL ends in “.com” or “.net” it’s a dead giveaway that they are probably a for-profit organization.

Next week: What to do if you can no longer pay your mortgage.