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| The Basics | How to pick a $50 credit counselor
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Off-the-shelf opportunists
That's not a model that should really work with this new gang of borrowers, most of whom are too far gone to pay their bills (and some who will have trouble scraping together the $50).
Keating hopes that the credit card companies and lenders providing most of credit counselors' funding will kick in more money. Her agencies won't ignore telephone and Internet counseling for clients who prefer that route; many already provide these services.
But advocates like Consumer Federation of America and Consumer Action worry that some counselors will take advantage of the situation to skim more cash from vulnerable debtors.
They're most concerned about the heavily advertised, new-school credit counselors who, in the past, have skipped education and counseling in favor of 20-minute (or shorter) sessions that shoehorn consumers into credit card payoff plans.
These are the outfits that have been generating most of the bad press lately. Regulators have shut down a handful, including one-time hotshot AmeriDebt, accusing them of deceiving consumers and fronting as nonprofits, while funneling borrowers to their very-much-for-profit affiliates. (For details, see Feds sue, say debt counselor duped debtors.)
The IRS finally got into the act, as well. IRS Commissioner Mark Everson says he has half of the credit-counseling agencies under audit. His agency has yanked nonprofit status from companies representing 20% of the industry.
But that still leaves plenty of bad guys out there. The consumer advocates aren't confident that the Justice Department will screen them out. The advocates are especially worried that unethical counselors will coerce bankruptcy bound debtors into impractical repayment plans, just to collect additional fees from creditors.
3 steps to find the right counselor
If you might be in a position to file bankruptcy after Oct. 17, or you're interested in credit counseling as an alternative to bankruptcy, you'll want to take the following steps: - Get clear about what you're looking for. If bankruptcy is your best option, you'll want to avoid being routed into a debt-repayment plan you can't afford. If you're trying to avoid bankruptcy, though, a debt-repayment plan might help you stay out of court. Either way, read "The consumer's guide to credit counseling" for an overview of how this industry works and what to expect. If you're not sure whether to file, read the articles in our Bankruptcy Guide Decision Center for more information and consult a bankruptcy attorney about your options.
- Choose the format that works for you. If you want personalized help and counseling, make sure the agency you choose offers that. If you already know how you got in trouble and how to avoid it in the future, though, the less personalized approach may be fine.
- Go with a proven entity. Stick with agencies affiliated with the NFCC or the Association of Independent Consumer Credit Counseling Agencies. These organizations have fairly rigorous standards for their counselors and affiliates.
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