Is your credit costing you?

While some surveys show that 9 out of 10 consumers are unaware what their credit score is, I’d like to quickly share with you how your credit score could be costing you a fortune… in more ways than you can imagine.

We all know a low credit score will make everything in the world of finance more expensive because of higher interest rates from lenders due to being considered a greater credit risk (i.e. higher interest rates on car, homes and credit cards). While this may be considered common knowledge by some, it’s truly devastating effects are understood by few.

For example. If you purchase a $200,000 home on a 30 year fixed mortgage at 8% interest instead of 6% (because of your credit score); that 2% is going to end up costing you a total of $96,934.11 over the term of the loan. Now, think about how many “extra” years you’ll have to work to pay off $96,934.11 because of an extra 2% in interest?

The part few people talk about is all the other areas in life where a low score will increase your cost of living on an annual basis. For example. In addition to paying more for a car, home and credit cards, a low credit score will most likely have you paying more for the following as well.

1.) AUTO INSURANCE. As many as 92% of the 100 largest personal automobile insurers use credit information to underwrite new business, according to a 2001 study by Conning & Co., an insurance-research and asset-management firm.

2.) HOMEOWNERS INSURANCE. It’s thought many insurance companies see a correlation between low credit scores and increased property insurance claims. Therefore, a low score will result in higher rates.

3.) LIFE and HEALTH INSURANCE. Customers who are unable to pay their monthly insurance premium thereby pass along that increased cost to the insurance company whose stuck with the bill… resulting in a loss for the company. Since customers who pay without lapse are more profitable it is felt by many that a low credit score now even affects a monthly life and/or health insurance premium negatively.

One of the more shocking areas where a low credit score will you cost you is in the area of employment. It’s estimated as many as 42% of employers now do credit checks on applicants before hiring them (according to a 1998 survey by the Society for Human Resource Management).While many employers claim they only do it to “verify” information on your application (such as where you live and where you have worked etc.) we can both assume they are taking the liberty to “have a peek” at how you handle your financial affairs as well.

According to the Public Research Interest Group (PIRG) as many as 79% all credit reports contain errors — 25% of which are serious enough to cause the denial of credit (according to a 2004 report).And that’s all the more troubling in light of the increasing impact a bad credit report can have, says Ed Mierzwinski, director of PIRG’s consumer program. “It’s outrageous that the credit bureaus are claiming their scores are accurate enough to take people’s lives and screw with them like this”.

To learn other valuable credit tips go to http://www.propertyinfodirect.com/creditboostingsecrets.html Today!

 

Why you should never have a debit card

Debit cards have become a very popular way to pay for everything from fast food to rental cars. The Federal Reserve reports that debit card transactions have been growing more than 20 percent annually and have surpassed credit card transactions. The appeal is understandable. Debit cards are quick and easy to use. But using a debit card can cost you hundreds and even thousands of dollars. We’ll show you why you should never carry a debit card.

More Risky than Carrying Cash

In it’s 2007 Debit Issuer Study, PULSE EFT Association reported that U.S. financial institutions lost an estimated $662 million to debit card fraud in 2005. There is no end in sight.You’d be safer carrying cash. Although you don’t have much recourse if it’s lost or stolen, but at least your loss is limited to the amount of the missing currency.Carry a debit card, and you put the entire balance in your bank account at risk. If you link your checking account to your savings account to avoid overdrafts, you put the balance in both accounts at risk.

More Dangerous than a Credit Card

If a thief gets your credit card, the federal Truth in Lending Act limits your liability for any fraudulent credit card charges to $50. You may not have to pay even that amount, as many financial institutions don’t impose any charge on their defrauded customers. And while the theft is being investigated, you can refuse to pay any part of the unauthorized charges.Debit cards fall under a completely different law, the Electronic Fund Transfer Act. To limit your liability to $50, you have to notify your bank within two business days of discovering that you’re debit card has been lost or stolen. Wait longer than that, but give your bank notice of the fraudulent transactions within 60 days of when your statement is mailed, and your maximum liability jumps to $500. Miss that deadline and you could lose all the money in your account. Because the debit card accesses fund directly out of your account, you can be left without your grocery money while the fraud claim is being investigated.

The $350 Taco

One trip to Taco Bell was enough to send Joseph Rizk’s checking account into freefall.Rizk made the mistake of paying for fast food with his debit card. He figures he spent only about $5 more than he had in his account. Unfortunately, by the time he realized there was a problem, the bank had hit him about $350 in overdraft fees. At $25 to $35 per occurrence, it’s easy to rack up hundreds of dollars in needless NSF fees.“I overdrew, and they pretty much pummeled me with charges,” said Rizk.The Center for Responsible Lending, a consumer group, estimates that overdraft charges cost people about $17.5 billion each year. The center’s research reveals that about 45 percent of those overdrafts are the result of using a debit card or taking out cash from the ATM.Banks used to refuse any debit card transaction that would overdraw a depositor’s account. But not any more. Banks could warn depositors when their accounts are close to being overdrawn. But they don’t.Instead most financial institutions automatically enroll their depositors in a program that loans them the amount of the overdraft—but at a steep price. The Center for Responsible Lending estimates that Banks that offer these lending programs can expect a sharp increase in overdraft revenues, as much as 200 to 400 percent.Calculated as an interest rate, rather than a fee, the cost of these loans is astronomical. The average amount of a point-of-sale purchase that overdraws an account is $14.75. The average fee is more than double that amount. According to the agency, most consumers only use these loans for a few days. So on an overdraft loan, the annual percentage rate can be as high as 20,000 percent.In defense of this practice, bankers like to point out that it’s the responsibility of the account holders to monitor their account balances and avoid overdrafts. Of course, that requires the account holder to know how much money is in their account.

How Can You Know Your Account Balance?

R. C. Welborn, learned the hard way about the risks of using debit cards. To make sure he didn’t overdraw his account, he checked his online bank statement. Since it showed $80 in his checking account, he fell free to make several small purchases a few days before his paycheck was deposited. Using his debit card, he bought two gasoline fill-ups, snacks and cigarettes, totaling about $65.Although the balance in his account was more than enough to cover the price of what he bought, when he checked his account about ten days later, he found he had incurred $120 in overdraft fees. “I couldn’t figure out what was going on, I knew I had money in the bank,” Welborn remembered.Like most people, Welborn didn’t know that merchants can place a pre-authorization hold on a customer’s account. In situations where the exact amount of the transaction isn’t settled when the approval is given, it makes sense a merchant would want reserve a little more to cover their transaction. If you give your debit card to a waiter, hotel clerk, car rental company, or gas station, the merchant is likely to get an approval of a higher amount—to cover any tip on their service, higher purchase amount, or room service. Car rental companies that accept debit cards routinely place holds in the amount of $300 to $500. Now Welborn understands that the pre-authorization hold the gas station put on his account resulted in overdrafts on at least six other small transactions. He estimates that he paid over $2,000 in overdraft fees because he used a debit card. “The quickest way to bankrupt yourself is not knowing what’s going on with your debit card, but if you don’t get a warning when you’re doing it, how to you know?” Welborn asked. “I won’t touch a debit card anymore. I do everything with cash.”Pre-authorization holds placed by merchants are just one of the factors that make it difficult, if not impossible for a depositor to know his or her available account balance. It’s becoming more difficult to tell when a transaction hits an account. Some debit cards allow for both signature-based debit card transactions, that, like a check, take a few days to clear, and PIN-based transactions, which hit the depositor’s account instantly. Take into account paper checks that merchants and service providers frequently convert into electronic drafts, and, without real-time account information, it’s impossible to know what’s in any checking account.Nessa Feddis, senior federal counsel for the American Bankers Association in Washington explains that even the banks don’t have up-to-the-minute information. “We don’t have real-time transactions. There will always be outstanding transactions that the consumer has authorized but have not hit the bank.” Comparing debit card transactions to a plastic checks, some financial institutions instruct depositors to keep track of their purchases, just like in the old days when checks and drafts were the only way to draw funds from a checking account.But in the old days, a depositor could wait for their bank statement to reconcile their balance. Now, by the time the statement arrives, the damage may already be done.“The debit card is really where it’s a serious problem,” argues Ed Mierzwinski, the consumer program director of the U.S. Public Interest Research Group in Washington. “It’s harder to keep track of your balance because of the tricks banks use.”In addition, there are no regulations or statutes that limit the amount of a pre-authorization hold, or the length of time that it can be imposed on an account. When Penny Chaisson’s bought $20 worth of gas, the station put a hold of $75 on her account, more than 3 times the amount of her purchase. She contacted both the gas station and her bank, but each pointed a finger at the other. Even after escalating her complaint to management, it was 72 hours before the hold was released.These holds stay in place until the bank or the requesting merchant gets around to releasing the amount held in excess of the purchase amount. Generally this takes a few days, but it could be longer.

How You Can Protect Yourself

Promptly reconciling your account to the monthly statement or monitoring your account balance on-line won’t always prevent loses associated with the use of a debit card.There is only one solution—Don’t carry a debit card. When opening a checking account, it is standard practice for a bank to send the depositor a combination debit/ATM card. However you can pick and choose the services you want to accept. If you want to avoid the risks of having a debit card, but would like the convenience of ATM access, you bank will issue you a card for just that purpose, without the debit card function.You can always pay for your purchases with cash or a credit card, since both are safer than using a debit card.  

Dirty Bank Secrets

In recent years, banks have adopted some practices that impose high fees and other penalties on some of their most vulnerable customers. We’ll take a look at two of the most dangerous pitfalls, and show you how to avoid them.

THE UNIVERSAL DEFAULT CLAUSE

Banks have been promoting low “teaser” rates on new cards and balance transfers, but there’s often a catch. Those preferable interest rates can jump into the high 20s and even in the low 30s if a borrower is late with a single payment.
Banks that include a Universal Default Clause in their credit card agreements can raise interest rates if their customers are late paying any debt. This means that if you don’t pay a utility bill on time, or forget to send a check to a book club, the interest rate on all of your credit cards can make a sharp jump upwards.

Changing the Rules in the Middle of the Game

It’s one thing to use a consumer’s payment history to underwrite a new loan. But credit card companies are applying these new, much higher interest rates to existing loan balances.

There is no other form of lending where this happens. If a bank tried to double the interest rate on an existing car loan, the courts would smack it down. Even with adjustable rate mortgages, there are established limits on when and by how much the interest rate can change.

Only with credit card debt are the banks allowed to increase rates on the slightest bad credit news. Worse yet, the amount of the increased interest rate they charge the consumer, as well as the event that triggers the increase, are at the bank’s discretion.

Even Without a Late Payment, Banks Can Raise their Rates
Mary Ann was shocked then she opened a credit card statement to discover her APR on the loan jumped from 8.99% to 18.49%. The bank informed her that, after reviewing her credit records, they determined her high debt-to-income ratio made her a higher risk borrower.

“I consider myself to be very capable with my finances, but I’ve had a few years where I ran up more debt than usual, including a home equity loan,” said Mary Ann. “I made all of my payments on time, but evidently my new debt affected what used to be a stellar credit record. It’s frustrating.”

Then another credit card statement arrived, raising the interest rate from 8.99% to 27.4%. Mary Ann was appalled, “In all the years that I held this card, I never made a late payment.”

Preying on the Inexperienced

When Seth Woodworth was a student at Central Washington University, he ran up over $3,000 in credit card debt. “I was pretty terrified of listening to my voice mail because of all the messages about the money I owed,” said Woodworth.

Students are an easy mark for unscrupulous credit card providers, because they often don’t have any experience using a card.
Woodworth didn’t read the credit card agreement, and had never heard of a Universal Default Clause. “I had no idea that my interest rate would rise the way that it did because I missed one payment,” said Woodworth. He also didn’t know that there is no regulation limiting the amount a bank can charge for a late fee on a credit card payment, until he was charged $39.

In their defense, issuers of credit cards say they emphasize consumer education. And, of course, they give every customer a disclosure of the terms and conditions of the credit card agreement. These agreements are often 30 pages long, and contain sophisticated legal terms.

Citibank promised to stop imposing a Universal Default Clause on its credit card customers, and has done so. But as of the middle of 2007, a survey by the advocacy group Consumer Action, reported that 8 out of 10 banks still employ a Universal Default Clause to raise interest rates based on customers’ credit reports.

As for Woodworth, he had to quit school and work for 2 years to pay off his credit card debt before he could finally resume his college education. He said, “If I could do it over again, I never would have gotten a credit card.”

BOUNCE PROTECTION

Many people are not aware that if they try to make an ATM withdrawal for more money than they have in their account, the ATM will allow them to do so, but the bank will impose an overdraft fee that can be as high as $35.

Bounce Protection, or “Courtesy Overdraft Protection” as some banks call it, is a program that many banks and other financial institutions routinely impose on their checking accounts. It used to be that a customer had to request overdraft protection on their account. Now it is quietly slipped into the terms and conditions agreement.

Getting Rich on Overdraft Fees

According to the National Consumer Law Center, Bounce Protection was designed and promoted to banks by several banking consulting companies, who sold it as a complete package, including software, consumer marketing materials, and operational assistance. The consultants promised that banks would increase their overdraft fee income by 100% to 300% or more—and they kept that promise.

One consultant calculated that a customer who makes only one overdraft transaction per month generates the same income to the bank as a depositor with a $12,000 average account balance. Since there are many more depositors who are likely to use Bounce Protection then there are affluent depositors, it benefits the bank to encourage customers to overdraw their accounts.
Maximizing Multiple Overdraft Fees

Where the banks are really making money is on multiple overdraft fees. Once an account has gone into a negative balance, any check, ATM or debit card transaction that hits the account generates another $20 to $35 NSF fee.

What’s worse, is the banks structure their accounting so that the largest transaction hit the account first, so if it puts the depositor over their account balance, each of the smaller transactions will trigger a new $35 fee. It would be easier to apply the transactions to the account in the order in which they occurred—but that wouldn’t generate the as many fees.

More Expensive than Payday Loans

In essence, banks are competing with payday loans. At least with a payday loan, borrowers know up front how much they are borrowing, and how much they are paying for the advance of funds against their paycheck. With Bounce Protection, a depositor often doesn’t know their account is overdrawn until the damage has been done, and it’s too late.

Since most overdraft loans are repaid within a couple of days, they may pay as high as 20,000% APR on their overdraft advances.

Unlimited Fees

There are no limits to prevent consumers from getting mired down in multiple overdraft fees, creating perpetual debt. And banks have a disturbing history of accessing the social security deposits of low-income and fixed-income depositors to cover their multiple Bounce Protection fees. These are not hypothetical situations, but real depositors that banks have literally put out on the streets without money for rent and food.

HOW YOU CAN PROTECT YOURSELF

Read the fine print
Be one of the few who actually reads the boilerplate contracts the bank gives you, containing the terms and conditions that control their credit cards. Since this is a legally binding contract, it’s worth the time to read the agreement and ask questions about any provisions you don’t understand—before you open an account.

And the fine print doesn’t end when you open the account. Most banks reserve the right to change the terms and conditions agreement at any time. You’ve probably received notices of changes of the terms of your credit card or bank account in the mail, with more legal disclosures. The only way to know what new terms the bank is imposing, is to read these as well.

Shop Around
Not all banks include a universal default clause or bounce protection provision in their consumer agreements. Look for a bank that will provide you the financial services you need, without putting your finances or credit rating at risk.

Check your Monthly Statements
With any credit card, it’s important to read your monthly statements, and to compare them with previous months. Interest rates have a way of creeping up over time. Even on fixed rate cards, interest rates can balloon on as little at 15 days notice from the bank.

If the bank does raise your rate, consider calling to ask for a lower interest rate. You’d be surprised how often they will do what is necessary to keep your business.

Conclusion
At some point, Congress may pass a law prohibiting these types of abusive fees and exorbitant interest rates. But in the meantime, the rampant greed of the banks that use Universal Default provisions and Bounce Protection fees to generate income goes unchecked. Thus, it is up to consumers to protect themselves.

Credit REPAIR-FACTS & FALLACIES

There is lot of information available about credit repair, but so much of it is conflicting, it’s easy to get confused. The credit bureaus themselves would like consumers to believe that there is nothing they can do to improve their credit ratings. There are unscrupulous credit repair companies that guarantee miraculous, instant jumps in credit scores… and then there are legitimate credit repair agencies that provide services that give consumers realistic and reasonable results.
To help clear up some of the confusion, here are five facts and fallacies about credit restoration:

1. Only Time Can Change The Information on Your Credit Report.

FALSE.

The purpose of the Fair Credit Reporting Act is to give consumers the right to challenge the accuracy and fairness of information on their credit reports. Congress recognized that credit bureaus have a vital role in accessing the creditworthiness of consumers. The act was designed to ensure that consumer reporting agencies exercise their responsibilities with fairness, impartiality and a respect for the consumer’s privacy.

The result is a federal law that gives consumers the right to challenge the information in their credit reports.
The FTC has warned consumers to avoid using credit repair services. Why? Because in the past so many Americans have been deceived by them. Due to the number of people desperate for credit repair, inflated offers of overnight credit restoration target a large and eager audience. Most of these companies promise impossible results and fail to deliver after they have the customer’s money. In an effort to protect the public from being preyed on by such companies, the FTC has issued the sweeping statement that “Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost.” However, this isn’t entirely true.

2. Accurate Information Cannot be Removed from your Credit Report.

FALSE.

The Fair Credit Reporting Act provides in part that a “consumer reporting agency is not required to remove accurate derogatory information from a consumer’s file, unless the information is outdated under section 605 [§ 1681c] or cannot be verified.” Section 609(c)(2)(E).

Did you notice the wording, “not required to remove”? There is nothing that prohibits credit agencies from removing accurate information. In fact, the Fair Credit Reporting Act lays out EXACTLY the situations in which credit bureaus are REQUIRED to remove an accurate item from a consumers report.

Why does anyone say otherwise? The banks want to know every derogatory event in a potential borrower’s credit history and the credit bureaus are in the business of selling negative information.

Congress recognized that consumers are bombarded with offers of easy credit and that good citizens should not be punished for every mistake they’ve ever made. Since the purpose of the law was to give consumers the right to challenge information in their credit reports, Congress left room for reporting agencies to remove even accurate information under certain circumstances.

3. Credit Reporting is Subjective.

TRUE.

There is no one number or report that defines your credit history.
There are three nationwide consumer reporting companies, Experian, Equifax and TransUnion. Each of these companies has its own sources of credit information as well as its own method for calculating a consumer’s FICO score.
FICO is short for the Fair Isaac Company. FICO scores range from 365 to 840. The higher the score, the better credit a consumer has. Anyone with a score of 720 or lower might benefit from credit repair services.

The way that FICO scores are calculated is shrouded in mystery. However, it is generally accepted that FICO scores are calculated on a scorecard on which several factors are given varying degrees of importance. These factors include: delinquencies, the number of new accounts, length of the credit history, the amount of unused credit available, and inquires requesting the credit report.

Since each of the three credit bureaus uses its own formula to arrive at a FICO score, they usually have different FICO scores for the same person. While some banks rely on only one FICO score, others look at all 3 and average them together.4. Credit Repair can be Instant and Guaranteed.

FALSE.

There are no instant fixes when it comes to credit repair. Even if you were to pay off all of your current debts, it would take at least a month for that action to be reflected on your credit reports.
So what is a reasonable period of time for a consumer to expect to see an improvement in his or her credit rating? Of course, it depends on the situation. And the consumer has to keep their credit in good standing going forward. Getting a new late payment reported will send credit repair efforts back to square one. A consumer’s goal is to convince the credit bureaus that the bad history is old information, and the new information accurately represents their current financial picture. Since credit bureaus tend to weigh most heavily the events of the last 12 or 18 months, depending on a consumers specific history, it is reasonable to expect that it may take 3 to 12 months to significantly impact a consumer score.

There is also an unpredictable aspect to credit repair. Of course, the skill of the person repairing the credit is one variable. But part of credit restoration depends on what each of the individual creditors and credit bureaus do. For this reason, the same type of request regarding the same kind of derogatory credit information can have very different results from one creditor to the next.

5. Lenders are the Only Ones Who Look at your Credit Report.

FALSE.

Running a credit check has become a common practice among a lot of businesses that deal with the public, not just lenders.
More and more, insurance companies are pulling their applicants credit reports before making a decision to issue or not issue coverage. The insurance industry justifies the practice by pointing to its finding that the likelihood a customer will file a fraudulent claim rises if that customer had a bad credit history. Of course, even if a consumer convinces an insurance company to issue a policy in spite of his or her bad credit rating, that customer is very likely to pay a higher premium that someone with a good credit.

Employers frequently check on their prospective employees histories. It’s very disturbing to think that a couple of derogatory reports on your credit report could keep you from landing a job, but it’s true. It’s not much comfort that any employer who rejects a job candidate because of his or her credit history has to notify that candidate in writing and provide him or her with a copy of their credit report.

There is now a law that requires insurance companies and employers to get written consent of the consumer before running their credit history. But this isn’t much protection. A potential employer can claim that a job candidate hasn’t completed their application until they sign the consent to have their credit report checked.

A bad credit report can negatively affect many aspects of your financial life. With something this important, it makes sense to get professional help with your credit repair. The result of any credit restoration effort depends in large part on how well a consumer complies with the repair program as well as the skill of the credit repair professional hired.

6. Anything a legitimate Credit Restoration Company can do for you legally, you can do for yourself at little or no cost.

FALSE.

Since Credit Restoration Companies work with numerous clients, the reputable ones have much more experience in dealing with creditors, the credit bureaus and collection agencies. As an analogy, credit dispute strategies can be much more complex than simply changing the oil in your car. Automobile mechanics can check the more technical aspects of your vehicle, such as your brake pads, rear differential fluid, etc. Another comparison would be representing yourself in court. It’s not impossible, but one small mistake could cost you. What if I were to say to you…

“Anything a legitimate attorney can do for you legally, you can do yourself at little or no cost.”
The same goes for a mechanic. In the end it comes down to the “cost to benefit ratio.” How much can I do myself based on my current skills and experience, and would I benefit by hiring someone to handle the more technical aspects of my credit report. The answer is almost always a resounding “yes.” A skilled credit restoration expert lives, breathes, and eats their work. They always have light bulbs going off in their head as to additional angles that can be used to get you the results you need, and as quickly as possible.

For example, some collection agencies can be very uncooperative. You just can’t “shake them”. They might ignore your dispute letter, and the credit bureaus might verify the account as accurate. What next? A skilled credit restoration expert will be able to bring you the persistence you need in getting negative items removed, as well as helping you add positive primary unsecured accounts to your credit report to immediately boost your credit score. This is why all consumers should consider hiring a professional.

Facts Consumers Should Know Before Considering Credit Counseling or Debt Consolidation

There is one topic which every time I write about it seems to generate some hate mail while at the same time spawning a flurry of wonderful praise from consumers. Of course, the hate mail is always from a few people that happen to own these “certain types” of businesses I discussed and those businesses of course are Credit Counseling or Debt Consolidation companies; of which many “claim” to be non-profit organizations.

You’d almost have to be an ostrich with your head stuck in the sand to not see or hear at least one advertisement a day from a Credit Counseling or Debt Consolidation Company. However, you can expect this to change and change soon. Since this is a topic that tends to “stir up” the owners of these businesses, I am going to take a different approach by NOT sharing my opinion, but rather, the opinion of others. I will start with the news media and the Internal Revenue Service:
“(NPR News, May 15, 2006).

The Internal Revenue Service is revoking the tax-exempt status of some of the largest credit counseling agencies in the country. An IRS investigation disclosed that the firms solicited business from people seriously in debt and that they didn’t provide counseling or consumer education, as required.

Prodded in part by a congressional oversight committee and consumer advocates, the IRS began investigating dozens of credit counseling agencies — most holding non-profit status — two years ago. IRS Commissioner Mark Everson says the companies “poisoned an entire sector of the charitable community.”
Everson says in many instances, companies were organized merely to funnel business to loosely affiliated for-profit companies. Many of the firms spend millions of dollars on commercials that urge anyone with debt to call them to solve their financial woes. And because tax-exempt organizations are not bound by the federal do-not call list, the firms were able to randomly call consumers, pitching their services under the guise of a non-profit counseling service.

The IRS investigations are also likely to affect consumers, thanks to a new bankruptcy law that requires consumers considering bankruptcy to get counseling before they are allowed to file. The IRS wants to ensure that only legitimate non-profit agencies are doing the counseling. In addition to the actions announced Monday, the IRS is sending more than 700 compliance letters to the rest of the credit counseling industry (END).”

Since almost all Credit Counseling and Debt Consolidation companies claim a non-profit status, I feel most consumers are easily sucked in with their skepticism and defenses at bay. After all, when most of us hear the word “non-profit” the first thing we usually think of is a church or homeless shelter.

From the NPR article and the actions of the IRS, I think it’s fair to assume that many of these “non-profit” organizations have been operating under a scenario similar to that of a wolf guarding a hen house. However, this doesn’t mean all credit counseling and debt consolidation companies are bad but… you do need to know the truth about how they operate and their limitations.

The first thing you want to understand is these companies are ALL more interested in making money off you than they are in preserving your credit rating. The bottom line with either credit counseling or debt consolidation is that it absolutely ruins your credit. I can just hear the companies arguing this with a consumer right now, telling them nonsense like “It helps your credit since it tells creditors that you’re working on your situation and not just running away from it.” Listen… if one these places tell you that, than watch out. Why? Because they will lie to you about other things as well!

One of the first actions these programs usually require you to do is for you to CLOSE all your revolving credit accounts. You then make payments to the organization and they take care of everything for you. What this says to all your creditors (as well as anyone considering giving you credit) is that you are so out of control with your finances that you can’t even manage paying everyone back on your own. Therefore, you’re hiring someone else to do it for you!99% of the time these companies will claim they can negotiate with your creditors and get interest rates reduced thereby saving you money. While this is true, what’s also true is you can easily negotiate these same rates as well as they can by just calling your creditors yourself. You’d be amazed at how many of your creditors would love to hear from you (especially when the chips are down!). Not too mention, any money the counseling company was to save you would more than likely be sucked back up by their monthly fees (usually around $500 to $1,000 per year).

This brings us into a whole other dynamic of their business model. Because these companies always make their money off of monthly fees paid by the consumer, the longer they can keep those monthly fees coming in the more profitable their business will be. It’s for this reason that most consumers who sign up with these companies usually find themselves on payment plans with the lowest monthly payment possible (which turns out to also be the LONGEST payment plan as well). Not surprising is it?
Am I against Credit Counseling and Debt Consolidation companies? Absolutely not. After all, there are millions of people in America who will never be able to manage their finances. Credit to them is a destructive addiction much like alcohol or drugs and they will never be able to control it. Instead, it will always control them. We’ve all seen these people. Every time they are extended credit shortly thereafter they are in financial trouble (usually blaming it on some external factor). For these people I think these credit and debt counseling programs can be a good thing (as a ruined credit report is not a hindrance to them but actually an asset). It keeps them out of future financial trouble by forcing them to live their lives on a “cash and carry” basis; which is ultimately conducive to a better standard of living down the road.

On the other hand. If you’re good with your finances and have control with credit but went through some type of hardship beyond your control in the past (i.e. divorce, job loss etc); then the services of these companies will never be for you. You will do far better and preserve your credit rating by taking matters into your own hands. Reason being is that you understand your credit rating is a powerful tool that can help you move ahead faster, help others and help yourself as well as create the life you want. It all comes down to self-management. We all know that others will ultimately manage those who cannot manage themselves. Credit is no different. When you learn to manage it well, you are the master and it is the servant.

If you care about your credit and want to benefit from it in the future, then you will never rely on a credit or debt counseling service to help you get out of any trouble you find yourself in. Instead, you’ll look inward and get yourself out while preserving your credit rating the best you can. Credit and debt counseling is for people who are “ok” with throwing their credit rating in the trash so they can have “someone else” manage their payments for them (since they are unable to manage them themselves). And again, as far as negotiating interest rates, you can do just as good as them or better. If you don’t believe me just call any of your creditors and straight out tell them your situation. You will quickly find you don’t need to be afraid of them. They just want to get paid like the rest of us.