Legal offers credit counseling, debt management plans Published July 10, 2009 By 1st Lt. Evan Bonnett 21st Space Wing Legal Office PETERSON AIR FORCE BASE, Colo. -- With the ongoing recession, many people have been having a harder time making ends meet financially. This has meant, among other things, that defaults on loans, credit cards, and other debts, as well as personal bankruptcies, are on the rise. Consequently, you may have noticed a stark increase in the number of advertisements you hear on the radio or see on television, which promise to help eliminate debt, deal with creditors in order to negotiate-down debt, or similar promises. But how do these organizations help debtors? In addition to offering counseling and advice, working with a credit counseling agency will usually involve establishing a debt management plan. This plan involves the debtor paying money to the agency, rather than directly to the creditors. The agency will then use this pool of deposits to pay the creditors on the debtor's behalf. The whole point is that frequently creditors will offer some sort of deal to the debtor in exchange for participating in such a program, such as lower interest rates or reduced principal. Now that you know what a credit counseling agency should do for a debtor, what should a debtor look for and what should be avoided when evaluating a credit counseling agency? The Federal Trade Commission has issued a "Must-Do List" for people on debt management plans. According to the FTC, a reputable credit counseling agency will employ counselors who are trained and certified in consumer credit, money and debt management, and budgeting. The FTC warns of credit counseling agencies that charge high fees, require payment before any counseling, and that do not provide education and counseling. The FTC advises that a debtor on a debt management plan should ensure that the credit counseling agency is actually making the expected payments by statements sent out by the bank as well as the creditor. Further, the debtor should maintain regular communication with the credit counseling agency in case any issues arise. Also, it is imperative that the debtor make timely payments to the credit counseling agency. The FTC also lists some important considerations and questions which should be asked of a credit counseling agency. - First, ensure that you aware of what types of services the agency offers--mainly, is individualized counseling an important aspect of the agency's work for you? - Second, make sure the agency is licensed in your state or has otherwise fulfilled the legal requirements to operate there. - Third, the FTC advises avoiding agencies that charge for information about the nature of their services. - Fourth, as with all important financial matters, get any commitment or verbal promises in writing and understand what you are signing. - Fifth, some agencies are actually affiliated with creditors or a creditor organization; avoid these agencies. - Sixth, research how past debtors who have used an agency you are interested in feel about the services that agency provided them. You can research complaints through most consumer protection organizations. - Seventh, understand how the fee structure you will be paying is set up and how employees are paid--avoid pushy commission structures or organizations that are not upfront about their fees. - Finally, the credit counseling agency will be compiling a great deal of information from you and should be open about how it will protect your personal, financial data. If you think you may have been a victim of a fraudulent credit counseling agency or debt management plan, if you have questions about the process, or if you would like more information, contact the Peterson Legal Office at 556-4871. The FTC also has a great deal of information and can be found online at www.ftc.gov or by telephone at 1-877-FTC-HELP.