Debt Help Firms More Scam than Help, with One Exception.

If you have read anything on this site about companies that tell you they can help you reduce your debts, help you get out of debt, or help you fix your credit, you know we are very skeptical of these claims. There is only one debt help organization we recommend based on our experience, and we’ll get to that in a minute.

But first, The Wall Street Journal recently reported in some detail on the scams runs by debt help firms. The most common thing these firms do is charge you a fee to consolidate your debts, offering to get reduced settlement amounts from your various creditors if you send them a monthly check which they then distribute to the creditors. They take a fee from you and get a commission from your creditors for acting as collection agent.

But some of them simply never make the payments to your creditors. They keep your money and in the meantime, your debts balloon with late fees and interest charges. Trying to get your money back when they do this is a real hassle — to say nothing of fixing your credit problems. You will probably have to file bankruptcy, which may be what you should have done in the first place.

The number of complaints against firms offering this service has risen dramatically in the past year as more and more people try to deal with their rising debt problems. In addition to failure to make payments, complaints include being misled about services to be delivered, length of time it would take to get things done, and costs.

Costs can be absurd. Some companies charge an upfront fee of up to 15% oft your debt. Almost all have a monthly servicing fee and some charge you a percent of any money you saved.

The fact that a debt help firm is non-profit (I see a lot of ads on cable channels for non profits) may mean nothing. Of 63 non profits examined by the IRS, 49 were found not to be truly non-profit. Many were simply fronts for profit-making firms.

If you want to work with a debt help organization, make sure it is one that is a member of the National Foundation for Credit Counseling ( They usually go by the name of “Consumer Credit Counseling Service” and they can be found all around the country. I have worked with one of their members and found them to be honest and reliable.

If you use them for a debt management plan, they will arrange to stop interest and penalties on much of your debt, eliminating past interest and penalties in many cases, and they will set up a monthly single-payment plan for you that will eliminate your debt over time.

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