Find Legitimate Debt Consolidation Programs

And Avoid Bankruptcy

Here's where we tell you how to find a legitimate debt consolidation service. We also have information on what to watch out for and how to avoid being taken advantage of. Please also read our page about debt consolidation scams and unscrupulous companies.

Debt Consolidation vs Bankruptcy

Before you sign up with a counseling program, be sure you really need help. Think about this - If you can’t make the minimum payments on your credit card accounts or are consistently late with some or all of your essential bills (rent/mortgage, utilities, car payment, etc.) or you have collection companies calling you all day long; then you probably need assistance. Then again, if you are up to your eyeballs in bills you can’t pay, you may be too far into debt for any program to help. It may be time to consider bankruptcy. Get more information on the recently changed bankruptcy laws. In some cases bankruptcy may be the only option.

Consolidate Debt, a Bankruptcy Alternative

If you do decide to use a debt consolidation program, be very careful whom you choose. Shop around. Not all debt consolidation programs are created equal. You don't want to be taken advantage of and end up paying large fees with no debt reduction to show for it. Avoid the pitfalls and scams by checking references and asking questions, a lot of questions.

• Start with a call to the Better Business Bureau to see if the company you want to work with has black marks against it. If they do, find another one. You deserve to work with a debt consolidation company that is in good standing with the BBB.

• Call your state’s Attorney General and consumer protection agency to see if any complaints have been filed. If so, ask for details of the complaints. Note that not all states require debt consolidation companies to be licensed, for example, Maryland and Florida. If the proposed company is located in an unlicensed state, exercise extreme caution - in other words, run! - and don’t look back.). Another important note is that some states require the counselors be licensed. If you know the name of your proposed counselor, ask your state attorney general if s/he is licensed.

• Ask your state Attorney General if your state requires the company you want to work with to be licensed and, if so, whether the debt consolidation service is.

• Ask the company for the qualifications of their counselors. Have they been accredited or certified by an outside organization? If yes, by whom? If not, how are they trained? Try to use an organization whose counselors are trained by a non-affiliated party.

• Contact the Federal Trade Commission (FTC)

The FTC does not resolve individual credit problems; however, it does investigate and can act against a company if it sees a pattern of possible law violations. If you believe a company has engaged in credit fraud, you can file a complaint online at ftc.gov, or send your complaint to:

Consumer Response Center
Federal Trade Commission
Washington , D.C. 20580

• Ask the company if they specialize in negotiations with creditors and how they will work to consolidate your debts and provide lower interest rates.

• Ask them how long they have been in business. Pay particular attention to how they answer this question. Try to find out if they bought out another company or changed their name some time along the road.

• Ask them what services they provide. What fees do they charge for them?

• Ask for a written statement of all the fees they charge. Be aware of excessive fees or "voluntary contributions."

• Ensure they don’t want you to pay for credit services before they actually provide any services. You may have to pay a fee for their services, but they should be very clear about this and the fee should not be exorbitant. Compare their fees and expenses with the other debt consolidation companies you are considering using.

• Ensure that they advise you of your legal rights.

• Once you make a decision on which agency you want to use, verify with your creditors that the debt counseling agency is paying them, and paying them on time.

A legitimate company who sincerely wants to help you will not take advantage of you. They can remove a lot of the emotional and financial pressure you are feeling about your situation. If set up properly, a good debt counseling program will do the following:

• Treat you with respect and like a valued customer
• Educate you about your options
• Provide you with information on their methods to reduce your debt
• Do a good job of negotiating so that your repayment plan is realistic and manageable

They will provide you with a contract outlining the following:

• Payment terms for services, including their total cost
• A detailed description of the services to be performed
• How long it will take to achieve the results
• Any guarantees they offer