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Counselor or Salesperson? Beware of Debt Consolidation Service Frauds

By Gina Pogol
Mortgage Credit Problems Columnist


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If you're like most people, you think of a non-profit agency as a charitable organization. You'd expect advice from a non-profit bad credit debt counselor to be in your best interest. Unfortunately, dodgy non-profits abound in the credit counseling and debt consolidation industry.

Why are so many non-profits selling debt consolidation loans? There are currently over 850 non-profit credit counseling services. Non-profit status gives these services the advantage of exemption from specific consumer protection laws, furnishing clients with little protection from seedy agencies. As of May 15, 2006, the IRS had audited 63 credit counseling agencies and revoked the non-profit status of 41 of them. These 41 agencies accounted for 40% of all consumer credit counseling industry revenues!

New rules protect consumers with credit problems from debt consolidation rip offs. The Pension Protection Act of 2006 contains a slew of regulations for non-profit credit counseling services. Under the new rules, non-profit credit counselors may not make debt consolidation loans or earn referral fees by obtaining them for clients. This prevents them from selling you a debt consolidation loan, debt consolidation mortgage, or debt consolidation service while pretending to "counsel" you.

A debt consolidation loan can be a good tool for helping consumers with bad credit. A reputable counselor can help you look at all available options, including debt management programs, budgeting and lifestyle changes, and even bankruptcy. Debt consolidation loans can be valid solutions to credit problems.

A reputable non-profit counseling agency will counsel you based on your needs and situation. If your credit counselor seems to be giving you a "hard sell", or puts everyone into the same plan, consider getting a second opinion. A debt consolidation loan can be a great solution to your bad credit problem - just make sure that your "advisor" has your best interest in mind.

Source
US Dept of Labor

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