Debt Consolidation Firms Might Not Be Who They Say They Are

Debt Consolidation Firms Might Not Be Who They Say They Are »Play Video
SEATTLE - They claim they can help solve your debt problems. But buyer beware -- you could end up in worse debt than when you started.

While some companies really are non-profit debt counselors, consumer advocates say many more are looking to turn your debt into their profit.

That means the companies claiming to help you, can leave you buried in bills.

Someone Offering To Help

Kimberly Maule is trying to pay off medical bills that hit when she had no insurance. She's a prime target for the telemarketer who called on her cell phone.

Kimberly told KOMO 4 News she was relieved at first: "It's enticing! Hey! Here's somebody that's offering to help me!"

Within minutes, the caller calculated Kimberly's payments -- nearly $300 a month -- with a catch.

"The first thing they wanted was an up front fee," she said.

Large up-front fees are a big red flag. That money goes to the company.

Many debt-counseling companies are not as "non-profit" as they claim. Other common complaints are: companies not making full payments to creditors, companies making late payments, or not making payments at all.

"What they've done now is created non-profit counseling companies and then take their processing and services and put it in a for-profit sister company," said Charles Helms of Consumer Counseling Northwest.

True non-profit debt counselors help you learn to manage all your debt, not just pay off credit card bills.

Consumer Counseling Northwest is part of the original non-profit service that started in the 1970s. Now, it hears from consumers pushed even deeper in debt by other companies whose primary goal is making money.

Helms says many companies will only help consumers with credit card debt because their agreements are with credit card companies. Some also charge monthly fees in addition to the bill payments, which means people who can least afford it, are having to pay hundreds extra just to pay their bills.

"It's sad to see people who are in desperate financial situations get taken advantage of," Helms said. "I mean, that's not what a non-profit does."

Many pseudo non-profit companies also fail to tell consumers that if they don't stick with the program, for whatever reason, many creditors will not let them work with another debt counselor for up to a year.

Consumers are also not told that the credit counseling agreement will be added to their credit reports.

Luckily, Kimberly learned about Consumer Counseling Northwest and told the telemarketer that called her to take a hike. Her advice: Before you contact a debt counselor, do your homework and find out the truth about the debt consolidation industry.

"If you don't, there's a high possibility right now that you're gonna get caught up in giving your money to somebody and you're never gonna see it again," she said.

Kimberly also warns of unsolicited offers for guaranteed credit cards.

"I got that call that says 'Hey! For $249, down you're guaranteed a major credit card!" The company turned out to be a Canadian firm taking money for credit cards that didn't exist.

"People get taken,"says Kimberly. "They don't know how to research. They don't know what to look for."

No Regulations

Part of the problem, is there's virtually no regulation. But there are signs that could change.

The state of Missouri just sued the nationally advertised Ameridebt, accusing the company of defrauding million of dollars through excessive, hidden fees and monthly charges. And last month, a major company called National Credit Repair agreed to pay back more than a million dollars after falsely claiming it could remove negative information from your credit report.

For More Information:

FTC Information On Debt -- www.ftc.gov
Consumer Counseling Northwest -- www.ccnw.org
FTC Charges Nationwide Credit Repair with fraud -- www.ftc.gov
Missouri Sues Ameridebt -- Associated Press Wires