Realty Times July 17, 2002

Credit Counselor Or Debt Negotiator?
by Broderick Perkins

The burgeoning credit and debt counseling industry is evidence of the growing level of indebtedness and delinquencies, but it's not always clear which type of counseling you could need if you get in over your head.

Choose wrong and it can cost you your credit standing, or worse, you could lose your most valuable possession -- your home.

The Federal Reserve reported a 6.8 percent rise in consumer credit in May, the statistic's biggest jump since November, reaching $1.706 trillion and exceeding experts' projections by $2 billion.

Record low mortgage rates, higher incomes, equity growth and stagnant inflation triggered the jump, as spendthrift consumers all but ignored the war on terrorism, the Wall Street bear and corporate scandals.

Consumers who go too far, however, will have to scrutinize the financial counseling they may need.

The non-profit financial education group, San Diego, CA-based Institute of Consumer Financial Education (ICFE) says a growing number of financial counseling services offer a variety of options, including sit-down sessions, telephone talks and Internet interviews from two general types of services, but it all comes from two general types of services -- credit counselors and debt negotiators.

  • Established consumer credit counselors, funded in part by the creditors, encourage consumers to make every effort to pay the debt. The counselor may seek reductions in interest charges and payments as part of an overall plan to pay off the debt. Consumers avoid bankruptcy and credit ruin, says ICFE.

  • Debt negotiators promote debt reductions, sometimes by up to 70 percent, so creditors can more easily pay off the remaining portion. The technique avoids bankruptcy, but can leave charge-offs on a borrower's credit report. Creditors view charge-offs much as they do bankruptcies. To take advantage of debt negotiations, consumers must have the cash on hand to pay off the reduced debt and often hefty fees for the negotiation services. What's worse, the Internal Revenue Service and state tax collectors may view forgiven debt as income and levy applicable taxes.

    ICFE says there are 20 statements borrowers can consider. If any one applies, a visit with a credit counselor may be in order. ICFE advises consumers to choose only certified credit counselors with a bona fide, nonprofit, accredited, consumer credit counseling service.

    The statements are:

    • I don't know the total amount of my debts and obligations.
    • It is very difficult for me to save any money at all.
    • I have a paycheck to paycheck life-style.
    • There have been occasions when I have paid late charges on a loan.
    • I have paid only the minimum on revolving charge accounts.
    • I have used (or plan to use) a consolidation loan to pay my bills.
    • I have argued with my spouse over finances.
    • An increased percentage of my income is being used to pay my bills.
    • I have approached or am about to reach my credit limits.
    • I have received calls from a collection agency at both work and home.
    • I have been threatened with repossession of my car or credit cards.
    • I have put off medical or dental visits for financial reasons.
    • I have reached a point where I would be in immediate financial difficulty should I have an interruption in or suspension of my income.
    • I am not properly insured with my motor vehicle because of financial troubles.
    • I am behind on my child support other court ordered payments.
    • I am afraid to add up my debts.
    • I have had a financial institution close my checking account because of too many non sufficient funds checks were presented.
    • I have lost check writing privileges at some merchants I shop with, because of non sufficient funds checks.
    • I am unable to obtain needed credit due to my credit report.
    • I have been turned down for an apartment or home mortgage based on my finances.

    • Copyright © 2002 Realty Times. All Rights Reserved.

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