Harris-Courage & Grady, PLLC
Ten Dirty Secrets
Credit Counselors Don’t Want You To Know
- The credit counselors’ primary source of income comes from creditors, mostly credit card creditors. Ask the credit counselors if they receive any of their funding from creditors. Since their primary funding is from credit card creditors, their loyalty is to the credit card creditors. The IRS has disqualified several credit counseling businesses claiming to be “not for profit” and found they were instead disguised collections agencies for the credit card companies. Since their income comes from credit card companies, these credit counseling companies will tell you they are unable to help you with mortgages, car, student loan and tax payments, which are probably your largest debts. They also cannot help you with judgments or even stop creditors from getting judgments. A bankruptcy can help with more than just credit card issues.
- If you use credit counseling to pay your bills for you, this information will be reported on your credit report. Potential new creditors will believe that by using credit counseling help, you are not responsible with credit and will deny you further credit. Therefore, using this service will not “protect” your credit.
- If you use credit counseling to pay your bills for you, you will be late with your payments and you will be charged late fees. The late payments will be reported on your credit report. Most of our clients see no reduction in the amount they owe the creditors after paying several thousands of dollars to credit counselors. They also see their credit scores plummet.
- Credit counselors cannot force a creditor to accept a proposal. There are always some creditors who will not work with the credit counselors, and the creditor will sue you instead, leaving you with a judgment lien on your home, your name in the paper, garnishment of wages, all which are worse than a bankruptcy. Also, if creditors do agree to reduce the amount owed to them, they will file 1099 statements with IRS. The IRS will consider the savings to you as income for which you will need to pay additional income taxes.
- Two years after filing bankruptcy, you can qualify for a normal home loan with competitive interest rates if you keep your credit clean and have the income to support the payments. Bankruptcy can actually improve your credit in some cases.
- Since credit counselors’ loyalty is with the credit card companies, credit counselors will recommend that you use a 401K, take a 2nd mortgage, refinance your home, or borrow money from relatives to pay off credit cards. You thereby unnecessarily put your retirement, home and relationships at risk. Your 401K and the equity in your home are protected in bankruptcy.
- Credit counselors will encourage you to work a 2nd job which will further increase the stress of your family and then when you decide you want to file bankruptcy, under the new bankruptcy law, you could be forced to work the 2nd job for an additional five years.
- Several credit counseling businesses are completely fraudulent and will simply take your money, keep it for themselves, never pay creditors a dime, and offer no help whatsoever. Basically anyone can call themselves a credit counselor.
- If a credit counselor is not supported primarily by creditors, then the fees of a legitimate credit counselor will be between $3,000 to $10,000. This will not include the money needed to pay off the creditors.
- If you need to file bankruptcy, credit counseling will not work. It will just take precious resources and you will still need to file. Credit counselors exist because they take advantage of consumers’ unrealistic fears of filing bankruptcy.