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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Characteristics of Reputable Debt Management Companies

First, look for a debt management company that includes credit counseling and free information. Any reputable agency will not want you to wind up in even more debt.

They should provide free resources, monthly budgeting forms, financial calculators and other self-help tools to help you get back on track. 

Video: How to Choose a Debt Management Company

Secondly, look for a debt management company that has been licensed by your state ’s Department of Financial Institutions, approved by the Department of Justice and holds accredited non-profit status. While there’s no guarantee that a non-profit organization will operate any more ethically than a private company, you’re always likely to be charged less and gain more free information with a non-profit. Members of the AICCCA, the American Association of Debt Management Organizations, the National Foundation of Credit Counseling and the Better Business Bureau tend to be more reputable.

Thirdly, make sure the debt management company communicates with you. They should request all necessary information – your account statuses, creditor names, balances, interest rates and minimum payment amounts – before offering a price quote. They should also let you know whether you’re entering a debt management, debt negotiation or debt settlement program, as they are all slightly different.

avoid scams by finding a reputable debt management company

Most importantly, look out for shady requests! Most reputable debt management companies charge a small monthly fee to cover administration costs. This fee can range from $2 - $5 for each creditor and should never exceed $50 per month. Common scams ask participants to come up with hundreds or even thousands of dollars upfront to start the program.

Common Debt Management Shopping Mistakes

One common mistake when shopping for reputable debt management companies is to assume that “non-profit” means “legitimate.” In fact, a number of dishonest robber barons seek non-profit status to evade consumer protection laws and avoid paying taxes on the money they make. Some company heads of “non-profits” like AmeriDebt, Genus or Credit Counselors of America made nearly $400,000/year! Check with the Better Business Bureau to see if any complaints have been filed with the company before you get involved.

Also, many consumers operate on the outdated “promise and a handshake” principle. For your protection, every detail of your agreement should be clearly stated in writing. Look in your paperwork for information on what happens if you’re late or miss a payment, what the monthly fees are and how long your program is scheduled for. Be sure you understand which type of debt reduction plan you’re involved in: debt settlement, debt negotiation, debt consolidation, debt management or bankruptcy proceedings.

Some consumers fail to get all the answers before signing on the dotted line, only to find that their credit reports are hurt by missed payments and their debt is still soaring higher. Be sure you ask how your monthly payment will be used. Is it going into an escrow account to be saved up until it reaches adequate settlement amount? Is it being divided and dispersed to all your creditors each month? Is it going to pay off one creditor at a time? Or is the debt company paying off all your debts and using the full amount to pay for the loan they gave you?

Red Flags of Bad Debt Management Companies

You might have a bad debt management company if…

- You are charged a high start-up fee exceeding $50
- You are charged a percentage of your total debt amount, rather than a set amount
- You’re pressured into a plan immediately, without credit counseling
- It takes you more than 3-5 years to pay off your debts
- They promise to remove all negative information from your credit report
- They say they’ll pocket the first month’s payment for “administrative fees,” and then start paying off your creditors once you’ve paid them a substantial amount
-Your creditors are hounding you several months into the program, claiming they haven’t received a dime.

Video: Avoid the Scams

Reputable Debt Management Companies Near You:

Alliance Credit Counseling – Charlotte, NC
American Consumer Credit Counseling – Newton, MA
CareOne Services – Columbia, MD
ClearPoint Financial Services – Richmond, VA
Community Credit Counseling Specialists – Toledo, OH
Consumer Credit Counseling Service of Greater Atlanta Inc. – Atlanta, GA
Debt-Free America – San Diego, CA
Family Credit Management Services – Rockford, IL
Family Financial Education Foundation – Evanston, WY
Family Life Credit Services – West Fargo, ND
Green Path Debt Solutions – Farmington Hills, MI
InCharge Debt Solutions – Orlando, FL
Money Management International – Buffalo, NY
Pioneer Credit & Debt Consolidation Services – Rapid City, SD
Take Charge America – Phoenix, AZ