If you're in deep debt doo-doo, it might be time to seek out professional help. Credit counseling can help get your money affairs in order; if you are considering the leap into bankruptcy, federal law now requires it. But where there are despairing borrowers, there are also fraudsters looking for substantial personal gain, or at least a hefty fee. When seeking to repair your damaged credit, always beware the altruistic label of "non-profit" and any contractual agreement to pay someone else to fix your finances.
A variety of organizations may label themselves as a "non-profit," and operate for the purpose of educating the public. In addition, the IRS extends tax-exempt status to certain 501(c) groups that work in the public interest, including credit counseling groups. However, non-profit doesn't necessarily mean "free." Such a group may charge for its services, and label the expense a donation, contribution, advisory fee or a charge to defray costs. Before signing any kind of agreement for credit counseling, verify exactly what your costs are going to be. A federal law known as the Credit Repair Organizations Act requires the services to be completed before you can be charged any such fee.
An organization that promises to "repair" negative information on your credit report is making a promise it probably can't fulfill. Bankruptcies, defaulted loans, collection accounts and late payments appear as reported by your creditors, and if an entry is valid, there is nothing you can do to remove it. Only time, and on-time payments, will repair damage done by such negative flags, which in the case of a bankruptcy can stay on the report for 10 years. On your own, you can request that inaccurate information be removed by writing directly to the three credit bureaus: Experian, TransUnion and Equifax.
A common practice of fraudulent credit counseling organizations is to advise that you assume a new "credit identity," either by doing business under an employer identification number supplied by the IRS, or by opening joint accounts with someone with better credit. The first practice is illegal; using an EIN with the intent to deceive lenders about your credit status can earn you a fine and jail time. The second approach might also be considered fraud, and could land you and your partner in legal trouble.
Assuming the Payments
Although credit counseling may come with an offer to get your balances reduced and handle the monthly payments, these services can end up costing more in the long run than sticking to a simple monthly budget. There are fees charged for this service, and a CCS flag on your credit report is considered negative information by most lenders. It's better to negotiate with the lenders and credit card companies on your own, and try to work out either a lower interest rate or an installment plan to get collections accounts paid off.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.