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Top Ten signs you are dealing with a bad consolidation firm

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#1 radi8

  • Admin
  • 27,405 posts

Posted 14 July 2009 - 11:26 PM

Top Ten signs you are dealing with a bad debt consolidation firm:

1) They attempt to sell you on a DMP (Debt Management Plan) before doing a thorough review of your financial situation.
A good review can take at least an hour. Tell "5-Minute Freddie" to take a hike.

2) They make a big deal of their "Non Profit" status.
Most are non-profit. The better ones don't wave it like a flag. Most anyone can incorporate a non-profit, it is not an indicator of quality.

3) They guarantee your credit won't be damaged.
Even the best plan can leave a "managed by consumer credit counseling" notation on included accounts for the duration of the plan. This will effectively prevent you from obtaining most new credit- at least while you are in the plan. A properly done plan will make sure those notations are removed when you exit the plan- but there are no promises as to what creditors will report.
A honest counselor will tell you exactly that: they'll do their best to minimize damage to your credit, but there are no guarantees.

4) They quote you an unbelievably low payment amount.
The truth is, most creditors offer the same terms no matter which counseling service you choose, thus your payment will be roughly the same no matter who you choose.
If you are offered an unbelievably low payment amount ( less than 2.5% of your balance is a rough rule of thumb) you are being lowballed.
Once you sign up, those payments will magically increase. Or worse- they won't ...and your creditors- who have not agreed to the plan- will consider you late even though you are making the plan payments.

5) Claim you can include IRS debt in the plan.
Well you can, but there's no point. The IRS won't deal with consolidation plans- you have to deal with the IRS directly if you qualify for a hardship reduction.
Same with Federally guaranteed student loans.

6) They don't know anything.
They won't tell you which creditors have agreed to the plan and which have not until you are 2-3 months into the plan.
They can't tell you what your rates or payments will be.
They don't tell you to CLOSE the accounts yourself, BEFORE signing up.
They don't make sure the payments are affordable, or warn you what may happen if you drop out.
A good counseling firm already knows which creditors will agree to a DMP and under what terms. They have tips on minimizing the damage to your credit. They make sure you can afford the plan.
They've done this before.....haven't they?

7) They disburse payments just one or two days per month.
yeah, but your due date isn't anywhere near those days.
YOU have to contact your creditors to adjust the due date- (preferably no less than 2 weeks after the DMP's disbursement date) many creditors won't do it upon the counselor's request. Remember- if the plan payment arrives late- you are still late!
A better solution is a DMP that has adjustable disbursement dates, in case the creditor won't budge.

8) The offer you rebates for "your good payment history".
Sure. But they're overcharging you for a cheap marketing ploy. Who do you think is paying for those rebates? You are!

9) They keep pushing Louie the Debt Settlement Lawyer.
Debt settlement is dangerous territory. The reputable counselors don't offer it because they don't want you sued and your credit destroyed.
If they offer debt settlement as their "backup plan", they mean just in case they don't make enough money off of you with the consolidation attempt.
On the other hand, Louie does do a pretty spectacular disappearing act when you get sued. :)

10) They can't do simple math.
They advise you to include zero-percent or low rate cards in the plan. Of course your creditor will be happy to agree to a new repayment proposal at 9.9% !

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