Got a credit or debt problem? Chances are that a friend or a financial expert will suggest you contact the National Foundation for Consumer Credit, a network of 1,300 non-profit organizations that counsel people on how to get out of debt and pay off their creditors.
Those local outfits are better known as Consumer Credit Counseling Services. They arrange “confidential” appointments–either in person or by phone–to review your personal financial situation for little or no fee. Typically that fee is only $10. CCCS educates you on how credit works, analyzes your spending and offers a solution to handle your living expenses and payments you owe to companies.
They’ll almost surely get nasty creditors off your back, and they often can get them to reduce or waive ugly finance charges.
What you probably aren’t aware of is that although CCCS has a strong pro-consumer reputation, it really represents both parties, you and the creditor. In fact, CCCS is entirely funded by credit-card companies, finance companies, banks and other creditors–more than 10,000 of them. When CCCS arranges your payments to creditors, it keeps an average of 10 to 15 percent of the money.
That’s how it stays in business, and how it got $1.6 billion for creditors last year.
Contributions creditors make to CCCS are “voluntary,” says CCCS, explaining that creditors logically have “a financial interest in getting paid.” However, it adds, “your accounts with your creditors will always be credited with 100 percent of the amount you pay.”
How does that arrangement tickle you? Think before you answer.
– The upside is that dealing with CCCS–knowledgeable counselors who may be able to get the debt monkey off your back, and have negotiation clout with creditors–is a whole lot better than the alternatives.
Such as bankruptcy. Or dealing with fly-by-night “credit-repair” scams that ask you for hundreds or thousands of dollars upfront, but don’t tell you your legal rights or what you can do for free. These outfits may even tempt you to commit fraud by fiddling with your credit record.
– The downside to CCCS, say its critics, is that financial backing by creditors is “deceptive” in view of the popular notion that the agency represents the best interests of the consumer. Yet, when you check CCCS literature or its Internet site at http://www.nfcc.org, you’ll see the organization makes no bones about identifying exactly where its money comes from.
CCCS’ track record looks something like this:
This year it will counsel about 1.3 million individuals and families, evenly divided between males and females, whose average age is 35. Their average total debt is $19,688, their monthly gross income is $2,000, and they have 11 creditors nipping at their heels. Biggest causes of their financial problems? Poor money management (46 percent), reduced income or unemployment (26 percent), divorce or separation (11 percent), medical (9 percent) and other (8 percent).
Interestingly, CCCS doesn’t break out credit cards as being the single biggest reason why folks fall deeply into debt in the first place, a fact well known among most bankruptcy attorneys.
As for the bankruptcy issue, a CCCS spokesman said one study shows that for every person who files Chapter 7 or Chapter 13, “another 12 are teetering on the edge.” Project that out from the 1.3 million bankruptcies expected in 1997, and it shockingly adds another 15.6 million possible candidates.
Those are the folks CCCS believes it could help, if they’d only bite the bullet and call the agency at 800-388-2227 before their lives get worse and find out about the agency’s education and financial-counseling programs.
CCCS says it has enabled 32 percent of its clients to repay their debts on their own. About 34 percent went through the debt-management program, 17 percent were given “specific assignments” to complete before returning for follow-up counseling, 7 percent were referred to attorneys for legal help (Read: filing bankruptcy), and the other 10 percent were referred elsewhere.
If you work with CCCS, they’ll help you prepare an income worksheet and calmly take you through a realistic appraisal of your financial picture, including the debts you owe. This will tell if you’re making ends meet or spending more than you earn. If you have severe debt, they’ll invite you to enroll in the agency’s debt-management plan.
It works like this: You deposit funds with the agency each month, they send the money to your creditors–that is, after deducting CCCS’ commission. It takes about 48 months to repay debts through this plan, according to CCCS.
Look at it this way: It’s certainly worth 10 bucks to get those collection guys off your neck and also try to save your credit record.
– Tip. Is a company offering to repair your credit record? Federal law prohibits credit-repair organizations from taking your money upfront.
