Consumer Credit Counseling Dis-Services: Beware of these 3 Scams

It's happened countless times in Canada with dishonest consumer credit counseling services:

Consumers gather their bills, swallow their pride, and shell out cold hard cash for help in clawing their way out of debt by using debt settlement services or a debt management program, only to be taken to the cleaners by the very people trusted to helping them improve their financial situation.

The culprits in these schemes? Bad apple consumer credit counseling services whose agenda isn't in helping you, but helping themselves - to your cash.

Let me start by stating that many consumer credit counseling services are honest, but there are a few out there that are interested only in enriching themselves at your expense. It only takes one bad one to spoil the bunch.

Consumer credit counseling services routinely try to negotiate reduced interest charges and late fees to quickly take a bite out of your debt. By negotiating these reductions and consolidating all of your payments into one payment you can make to them once or twice a month, in theory you can save money and get out of debt more quickly. The debt settlement service then makes payments to your creditors on your behalf.

Here are some of the tricks the bad ones use - and how you can protect yourself.

1. The unscrupulous debt counseling services will apply your first payment to their fees, instead of forwarding it to your creditors. When this happens, not only do they usually "forget" to disclose this fact to you, doing so will result in your getting hit with late fees by your creditors. You can avoid this situation by finding out in writing what their fees are and how they'll be paid.

2. This next tactic flies in the face of logic if you're trying to claw your way out of debt and improve your credit situation, but some debt consolidation companies make payments on your accounts based upon their own schedule, regardless of when the payments are actually due. If this happens to you, your credit scores will sink a little farther and you'll probably have to pay a late fee, which will result in higher account balances.

3. The third most popular scam is the most egregious. Instead of making the payments you've entrusted them to make, a fly by night debt consolidation company will take your money and completely skip making the payments. When confronted with the charge that your payments were never made, they will claim that it's a computer glitch or the "check is in the mail" -- all the while continuing to take your money each month.

After a few months of this activity, they'll disappear into the night and your chances of recovering your money will evaporate. They'll be richer and you'll be left holding a stack of unpaid bills and a credit report that looks like it's been in a bar fight.

Here's what you should do.

You can help protect yourself from this situation by thoroughly checking out any debt management program you're considering. A good place to start is with the Better Business Bureau http://welcome.bbb.org/ and with Credit Counselling Canada. http://www.creditcounsellingcanada.ca

Once you've signed on with a debt management program, check with your creditors yourself to ensure that scheduled payments have been made. If they haven't, immediately contact your local law enforcement agency and quit paying the debt settlement service immediately.

It's one thing to swallow your pride and acknowledge that you have a problem with debt - it's another thing altogether to realize too late that the bitter taste in your mouth is the residue from an expensive lesson learned.

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