Home -- Guide's Table of Contents -- Credit Card Debt Blog -- Credit Card Debt Articles -- Court Summons -- Credit Card Companies -- Debt Counseling -- Debt Services -- Junk Debt Buyers -- Debt Collectors -- Credit Card Debt Consolidation -- Credit Card Debt Settlement -- Credit Repair -- Debt Collection Attorneys -- Contact Us -- Privacy Policy

Chapter 4: Credit Card Debt Services

There are two kinds of debt service firms.
1) Those that counsel you on how to manage your money, pay your creditors, and if necessary negotiate and settle with them.
2) Those that ask you to pay them, so they can negotiate with and pay or resist (for you) your creditors.

If properly experienced and credentialed, the first kind can be very helpful and affordable even though they may be paid by the credit card banks to help you pay your bills. The second kind can be expensive, ineffective, bring damage to your credit rating and can cause your creditors to blind side you with arbitration or lawsuit proceedings.

Those firms promise to take care of your debt problems for you.  They communicate with your creditors so you do not have to.  The problem is using them puts you out of the loop with your creditors.  You do not know what is being communicated about your finances.  You do not know how your creditors are responding. 

Tread carefully with these firms, or even better, avoid them. The online debt forums offer many stories of debtors being victimized by these debt service organizations.  Quoted on newyorktimes.com, Deanne Loonin, a senior lawyer with the National Consumer Law Center in Boston, has investigated [these debt service firms]. “It’s possible there are honest ones,” she said, “but I assume they aren’t until proven otherwise.”

Debt Management and Debt Counseling Services

Credit card debt management and credit card debt counseling services can be used interchangeably by some debt service organizations. Traditionally these services have offered advice on how to better manage your finances; advice such as transferring high-interest balances to lower interest cards, paying off high interest balances first, classifying debts as secured and unsecured, etc. In additional to nominal service fees for debt advice, these companies are compensated by helping you consolidate your payments into one monthly payment to them, which they in turn break up and dole out to each of your credit card accounts ideally at favorably negotiated interest rates and lowered monthly minimum payments. That is usually called debt management and is usually performed by a debt counseling agency. Traditionally the credit card banks have allowed them to withhold a percentage (10-15 percent) for themselves as compensation for working with account holders to assure their payments are made on time. 

Supposedly this happens without damage to consumers’ credit ratings.
The consensus is many of these firms are, in a sense, working for the credit card banks helping to collect your payments.  These services have been proliferating, and the credit card banks have been decreasing their “contribution” to these services. If credit card banks don’t put a blemish in a card holder’s credit report for participating in debt counseling or a debt management program, the card holder still risks credit damage when late payments result from confused payment schedules, or simple administrative ineptitude on the part of the debt management or debt counseling service.

With the new bankruptcy laws of October 2005, people filing for bankruptcy must first receive a “briefing” from an “approved” credit counseling agency.

Some of these debt management and debt counseling services are credible, others are not. Many, with less than ethical business practices, use their non-profit status to make consumers feel comfortable dealing with them. The ultimate test of their credibility and trust-worthiness is not whether they are non-profit, or Christian, etc., but whether they belong to their professional association, the Association of Independent Consumer Credit Counseling Agencies, and run their business in keeping with that association’s standards. Generally that means they do what they say they are going to do, and their fees are reasonable.

These are guidelines to use when evaluating debt management or debt counseling services.
You need to be reasonably skeptical and dully diligent when interviewing these resources to learn if they are credible and if they can be of help to your particular situation. You should decide ahead of time (or independently of their sales pitch) if you are willing to put money in their bank account for them to pay your bills, or if you have the discipline to save and make those payments yourself. Their upside is:
(1) Your use of them will only bruise your credit rating and
(2) The convenience to you of making only one monthly payment.
Their downside is:
You are risking more damage to your credit rating and more collection activity if they fail to make your payments in a timely fashion and you will by paying back all of what you owe with this strategy over a long period of time. Carefully review their contract, being sure you have legal recourse to pursue them in court if they cause you damage. Be sure they account monthly for all payments made to your accounts.

The federal Credit Repair Organizations Act, state debt management laws and federal and state unfair and deceptive practices (UDAP) laws offer consumers some recourse to mistreatment by these agencies.

Back to Table of Contents --or-- Go to the next page of Chap. 4

Subscribe to our free newsletter for the latest information on how you can protect yourself from debt collectors and collection attorneys. You do not have to suffer at the hands of debt collectors when you cannot pay your credit card debt.

Use these free chapters of the Guide to educate yourself about the realities of credit card debt collection operations, settlement, and relief scams.

Then buy the rest of the book including 85 pages in Chapter 6: Defeating Debt Collectors and Chapter 7: Defeating Court Action for the best strategy and language to effectively communicate in writing with debt collectors and collection attorneys to prevent them from pursuing your debt.