I worked for a major, nationwide, non-profit, credit counseling agency for several years. In light of an ongoing discussion in another post, I wanted to give a little insight into credit counseling. When you enroll with a credit counseling agency your household budgetary information is taken (this is now a strict requirement of many creditors) and a listing of your debts (i.e. creditor names, account numbers, payment addresses etc). From the information you provide the credit counseling agency will provide you with an estimated monthly payment (normally 2.5-4% of your balance for an individual creditor). This monthly payment will include the aforementioned percentage of each individual creditor balance plus any fee or "voluntary contribution" the agency may request. The agency will then prepare a "proposal" letter to be sent to your creditor electronically or by mail. The proposal will indicate the total amount of your debts, the proposed monthly payment to the individual creditor, and request the creditor allow this lower payment, lower or eliminate your interest and fees, and reage your accounts. The creditor will review this proposal against your account history, sometimes your credit profile and the budgetary information provided. They will then either offer target benefits ** or counterpropose offering a different set of benefits for your individual account, usually requiring a higher payment. In only about 15% of the cases will the agency receive a written response to their proposal letter, in almost all cases the creditor will simply make the changes on the customers monthly statement or send the customer a letter accepting or declining the proposal. Keep in mind a proposal, even if accepted, is nothing more than a gentleman's agreement to offer you special terms on the account as you have indicated you are having difficulty meeting your payments. It is not legally binding, the only document that is between you and the creditor is the cardholder or loan agreement. **Target benefits are established by the creditor internally and are offered to all credit counseling customers regardless of the agency with which they enroll, provided they meet the internal and budgetary criteria established by the creditor. Approximately 85% of credit counseling applicants receive target benefits, the remaining clients receive fewer benefits. Benefits are generally defined as reduction of your payment, reduction or elimination of interest, elimination of late, annual, and overlimit fees, and reaging (bringing to show current on their system) of your account. Upon receiving and accepting a proposal a creditor will monitor your account for 60-90 days to ensure that you are complying with the agreement and that your payment is received in a timely and consistent manner. Once this is established the benefits will be applied to your account. During this review period it is very common to continue to receive collection calls and letters from the creditors collection department regardless of your enrollment. Most creditors will also make an entry on your credit profile indicating payments are being received on the account through a credit counseling agency and the account is closed or inactive. The purpose of this entry is to discourage potential creditors from offering you any type of credit, especially unsecured, while you are still enrolled in credit counseling. After all you did enroll as you were having difficulty meeting your obligations and the last thing the creditor wants to happen is to see you be granted a new credit card, and to have you pay normal payments and interest on the new card, when you have received a reduction from the account you placed on the credit counseling program. After you have completed payment on an account through the program, most creditors will update your credit profile information to indicate paid in full, zero balance, with no indication of credit counseling. A few will only do so at your written request, others will make no indication you were ever making payments via credit counseling. Creditors are offering fewer interest rate reductions, it is typical to see the minimum payment the same as when not enrolled, and some will actually report on your profile that you are not paying as agreed, as your payment is lower than the percentage on your cardholder agreement. If you are able to comitt to a set payment for the entire length of the program and are never late the program works well for many. Most people that enroll do not have much control of their budget and will miss a payment within 18 months of enrollment. A single missed payment can be devastating as most creditors drop the account from the special status and immediately begin charging normal APR and L/C begin to accrue. Avoid large internet/phone based companies. You will receive a wonderful sales pitch and will be made to feel warm and fuzzy. The truth is almost all of these have expanded far beyond their capability to provide customer service after the sale. They are notorious with the creditors for late payments, misdirected payments, etc. this damages your credit, because the creditor basically holds you responsible for their mistakes. If you must go through credit counseling, use a small local company, witha good track record like CCCS. At least here, you will receive budget counseling, and will always have the opportunity to confront someone face to face should the need arise. Never pay an non profit agency a monthly contribution for credit counseling. Most now charge a set up fee as it is. As a non profit they cannot require a monthly fee or contribution, and what most will not tell you is 5-15% of your monthly payment to an individual creditor is returned to the agency as a fee. You receive credit for the full payment, the creditor either has the "fair share" as it is called deducted or billed. The company I worked for collected over a million dollars from Household Bank in 1999 alone in fair share. Credit counseling is profitable for the creditor as it is considered an indirect extension of their collection department. The creditor pays much less to collect on your account than through collections, you are still penalized for not paying under normal terms as you can no longer use their card and your credit profile reflects a negative. Did anyone else wonder why red flags did not go up with the new Bankruptcy Bill when credit counseling was a possible requirement before filing? What I found very ironic was that most of our Executive Team, and all the VP's were former executives at First USA, MBNA, Metris (Direct Merchants), etc. Throughout the industry many of the Executive level empl9yees are former credit card company exec's.....DOES ANYONE BESIDES ME SEE A LITTLE CONFLICT HERE? Overall, Chapter 13 has it's drawbacks, but I believe the protection of the Automatic stay makes this a far better option than credit counseling, which offers no protection against collection action.
Hal, I think can guess who your company was. I personally have carried on my own personal campaigns against Ameridebt, who is now operating under lots of different names like Neway. I have been personally threatened by this company's legal team for the postings/articles I wrote, put on my site. It really kills me what a racket these big companies are - all operating under a non-profit banner. I have maintained all along that the execs in these companies are highly paid, which ensures that these companies don't make a "profit". You have confirmed my suspicions about the salaries of these by listing their former jobs. It's disgusting. Bravo for your insights.
Hal, Any advice on using a Debt Elimination program as offord by TA Financial Solutions??? Can they really eliminate all unsecured debt through a letter writing campaign? There are alot of companies out there now making that claim. Any advice or experience??