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|Debt is a growing problem in the current economic environment. During the housing boom and economic upswing a few years ago it was increasingly easy to qualify for mortgages, credit cards, and car loans. Falling housing values, rising mortgage payments, and the economic downturn have forced many Americans to rely on unsecured lines of credit for sustainability and have left many feeling burdened by high interest rates. Reliance on unsecured credit is causing an increased number of people defaulting on loans and filing bankruptcy.|
Consumer Credit Counseling Doesn’t Work
They simply aren’t effective. Here’s why. You meet with a counselor who analyzes your monthly budget. The counselor then makes contact with your creditors and attempts to get them to lower the interest rate temporarily. You make one monthly payment to the counseling agency, which then disburses the funds to your various creditors. The theory here is that your overall payment per month is lower due to the counselor’s success at obtaining lower interest rates and more favorable terms with the credit card banks. The banks themselves most often recommend this approach.
So, does this really work? Well, maybe yes, more likely no, depending on your situation. First, you have to understand that the counseling service, while in theory is a non-profit organization, actually receives compensation from the bank you owe the money to. So, whose side are they really on-the side of the consumer who’s paying a monthly $20 administrative fee, or the bank that’s paying as much as 15% of the restructured debt?
With a CCC program, the most frequent complaint is that consumers have little or no insight into what the CCC agency is doing on their behalf, and they have virtually no control over the process. They send in their single monthly payment, with no idea of how much is going to which creditor, and since most counselors are busy people who work based on high volume, getting a return phone call can be difficult.
The most important thing to remember about CCC is this, the debt is still there, AND you are paying someone to send in the payments. Most people that go into CCC end up dropping out after a year. They spent MORE money if fees than they would have saved in interest and are still strapped with the same debt they had when they started the program. Do not forget that the banks, lenders and credit reporting agencies look at CCC the same as bankruptcy. We have spoken with some underwriters with lending institutions that claim CCC is WORSE than bankruptcy on a credit report. It is also important to know that this negative rating will remain on your credit report and prevent you from re-establishing your credit in a short period of time. Many of our clients come to us from CCC programs. They are angry to learn the truth. They could have saved all of those monthly payments and could have Eliminated all of their credit card debt with our program for a fraction of what they have spent while in the CCC program.
Debt consolidation sounds like a great idea, but there are many pitfalls. Most CCC companies claim they are non-profit. If they are non-profit, why do they need to collect fees from you UP FRONT? They may have a sheet of paper from the IRS that says they are non-profit, but that does not mean they do not make A LOT of money on you. We personally know people that own these non-profit Consumer Credit Counseling companies (CCC). They did not buy their million dollar house and new Mercedes simply by “helping” others. They know that you are going to quit their program and they get to keep your first months payment, or as they call it “contribution”. There may also be cancellation fees they get to keep. We feel that consumers are being taken advantage of everyday by these companies and so does the government. We will see laws changing in the near future to prevent this blatant attempt to take advantage of those that find themselves in credit card debt.
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