CONSUMER CONFUSION WHO DO I WORK WITH TO PAY DOWN DEBT?

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1 CONSUMER CONFUSION WHO DO I WORK WITH TO PAY DOWN DEBT? Presented by Kathy Virgallito Consumer Credit Counseling Service, now known as

2 What We ll Cover Today Options for paying down debt Scams to watch out for Where to go for more information 9/24/2012 2

3 What s Causing the Confusion? 1955 to late 1990s Community-based non-profit credit counseling provided majority of credit and debt counseling. Some credit repair scams out there as well. Early 2000s Debt levels rise. Growth of unscrupulous credit counseling and expansion of debt settlement industry. Scams increase. 2008/2009 Recession hits. Credit crunch begins. Record number of credit lines closed or reduced. Mortgage crisis hits. Consumer behavior changes drastically. Scams grow to take advantage of the financially distressed. Today People trying to rebuild their financial lives and looking for partner to help them with that. Uncertainty about who to trust. 9/24/2012 3

4 Debt Reduction Options Consumer DIY plan Nonprofit Credit Counseling Debt Settlement Companies 9/24/2012 4

5 work with to pay down debt Do-It-Yourself Requires motivation, persistence and organizational skills First step - Develop list of creditors Review budget and track spending Make adjustments and determine how much extra can be paid on debt Pay off lowest balance or highest interest first Negotiate with creditors directly for settlement or other payment options Many online tools and website resources available to help 9/24/2012 5

6 work with to pay down debt Legitimate NonProfit Credit Counseling Provides free, comprehensive initial session minutes Reviews overall financial situation, develops action plan Recommends Debt Management Program (DMP) only if appropriate DMP creates plan to pay unsecured debt in full in up to 48 months Payment to creditors begins once first payment is received and continues monthly May reduce interest and/or eliminate fees Discloses possible impact on credit report Creditors determine how the account will be coded on credit report Many creditors consider account current and being paid as agreed once 3 consecutive months of new payment received Debt paid through a DMP marked as paid in full Additional services available: Financial education, HUD-approved housing counseling, credit education session 9/24/2012 6

7 Checklist for Credit Counseling Comprehensive Services Free Financial Education Fee Structure Disclosed Contract/Agreement Licensed Agency Accreditation Counselor Qualifications Check Personal out the organization Info Security with the local Better Business Bureau and the Ohio Attorney General s office, Taken from the FTC Facts for Consumers: Fiscal Fitness Choosing a Credit Counselor 9/24/2012 7

8 work with to pay down debt Debt Settlement Companies Offer one service negotiate with creditors to pay less than the full balance owed Consumers pay into an account until enough has been accumulated to pay creditor Rise in complaints prompted FTC new regulations in late 2010 Cannot charge or collect a fee before they settle or reduce the debt Must disclose fees and terms Some charge a percentage of the amount you save through the settlement Some charge a percentage of the entire unsecured debt Monthly account fees may be charged as well Consumer makes monthly payment into an account. No payment to creditor is made until settlement amount has been saved. The consumer is likely to have a tax liability on the forgiven amount Possible negative impact on credit. Bills go unpaid until settlement amount saved and settled debts marked as settled on credit report. 9/24/2012 8

9 Red Flags for Debt Settlement Companies - Charges any fees before it settles your debt - Touts a new government program to bailout personal credit card debt - Guarantees it can make your unsecured debt go away or be paid off for just pennies on the dollar - Tells you to stop communicating with your creditors - Tells you it can stop all debt collection calls and lawsuits Check out the company with the local Better Business Bureau and the Ohio Attorney General s office, Taken from the FTC Facts for Consumers: Settling Your Credit Card Debts 9

10 Scams to Watch Out For Credit repair scams Foreclosure prevention scams Reduce your interest scams 9/24/

11 Red Flags for Credit Repair Scams - Asks for a fee in advance. - Doesn t tell consumers what their rights are or what can be done for free on their own. - The company recommends consumers do not contact any of the 3 credit reporting agencies on their own - Promises they can get rid of most or all negative info on the report, even if accurate and current - Suggests a new credit identity (to create a new credit report) by applying for an Employer Identification number to use instead of a Social Security number. - Advises consumers to dispute all the information in your credit report, regardless of accuracy or timeliness. - Put consumers in legal jeopardy. It s a crime to obtain an Employer ID number under false pretenses. Check out the company with the local Better Business Bureau and the Ohio Attorney General s office. Report concerns at the AG s office: /24/2012 Taken from the FTC Facts for Consumers: Credit Repair: How to Help Yourself 11

12 Red Flags for Foreclosure Prevention Scams - Asks for a fee, usually in advance - Guarantees to stop foreclosure or get a loan modification - Asks homeowner to stop contacting or paying the mortgage lender and pay the company instead - Pressures homeowners to sign paperwork they haven t read or don t understand - Claims to offer official government or government approved modifications - Might call or the homeowner asking for financial information Go to LoanScamAlert.org or PreventLoanScams.org for more information on reporting these. For HUD-Approved Housing Counseling Agencies: or call Taken from the Loan Modification Scam Alert at LoamScamAlert.org 9/24/

13 Red Flags for Credit Card Interest Rate Reduction Scams - Contact you via repeated robocalls - Indicate they have a special relationship with credit card companies - Guarantee reduced rates that will save you thousands - Claim lower rates are available for a limited time and pressure you to act now - May be a debt settlement company - All red flags apply - Might ask for personal financial information over the phone - Might call you even though you are on the Do Not Call List. To file a complaint, go to or call toll free, To report violations of the National Do Not Call Registry or register your phone: DoNotCall.gov or /24/2012 Taken from the Loan Modification Scam Alert at LoamScamAlert.org 13

14 Resources Federal Trade Commission (FTC) Dept. of Housing and Urban Development (HUD) Better Business Bureau (BBB) or your local BBB site National Do Not Call Registry DoNotCall.gov or National Foundation for Credit Counseling (NFCC) and to locate an NFCC agency in your area: Consumer Credit Counseling Service now known as Apprisen 9/24/

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