An Important Warning About "Nonprofit" Credit Counseling

Not all credit counseling is created equal—and "nonprofit" doesn't necessarily mean fair or honest. You must investigate whomever you use before you use them. Check with the NFCC as well as the local office of the Better Business Bureau. In addition, ask the agency you're considering for references. You'll want to speak to at least five customers they have helped.

Do not use a credit-counseling service that does any of the following:

1. Charges you high up-front or monthly fees to enroll in a debt-management plan

2. Pressures you to make "donations" for their services

3. Tries to enroll you in a DMP without first really looking at your situation, reviewing your bills and budget, or educating you about basic money management skills

4. Demands that you make payments to a DMP BEFORE the credit card companies have accepted you into a program

5. Refuses to put in writing what they are promising to do to help you

6. Won't provide referrals of people they have helped

Beware of "Debt-Settlement" Companies

As much as I am an advocate of credit counseling, I am leery of "debt-settlement" companies. These outfits offer to negotiate a settlement on your behalf with the credit card companies, often promising that they can "wipe out your debt or cut it in half." Their standard procedure is to tell you that if you stop paying the credit card companies and pay them instead, they will then be able to negotiate a settlement for you. In fact, there is no way to guarantee that your credit card company will accept a settlement from one of these companies.

Be very careful—it's amazing how many people I have seen ripped off by debt-settlement companies. One couple I did a "makeover show" with made payments to a debt-settlement outfit for a year—only to find they never paid off any of their credit card debt. It almost pushed them into bankruptcy.

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