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What to Do if You Have Been "Taken" by a Non-Reputable Credit Counseling Service! Red Flags to Look For!

Updated on February 18, 2010

Recently I wrote a HUB Page titled: Which credit card and debt consolidation counseling service is best? Questions to ask BEFORE signing a contract. Well, in this HUB I decided to write about what you should do if you happen to be ripped off by a non-reputable service. Unfortunately, there are people in this world who prey on the down and out. They look for the most vulnerable and then quickly reel them in with false promises. If you have been ripped off by a credit counseling company (that just so happens to be running a scam operation) don't feel bad…it happens to the best of us. Thankfully, there are things you can do to fight back! Hopefully, this HUB page will help you so that next time you reach out for financial assistance…you will be able to spot the red flags a mile away!

If It's Too Good To Be True, It Probably Is!

One promise that non-reputable credit card counseling services tend to make is that they can negotiate with your creditors on your behalf and get them to settle your unsecured debts for a lot less than you actually owe. For example, if you owe $20,000, they will tell you that they can bring that number down to say…$16,000. First of all, YOU can negotiate with your creditors all by yourself…you don't need to pay a company a large fee to negotiate for you. Secondly, it is very difficult to negotiate the amount you owe down. Though some creditors may agree to reduce the amount of your debt, it probably won't be by much. Also, if, they DO reduce the amount you owe, you will probably have to pay taxes on the amount they shaved off (the IRS will consider that income in your pocket) so don't be surprised when you receive a 1099 Form in the mail.

Another false promise that non-reputable companies tend to make is that they can wipe your credit report clean of all negative actions. NOT TRUE! Do NOT fall for this promise! Only the creditors that filed the negative reports in the first place can have them removed.

Reputable credit card and debt consolidation services charge very reasonable, low rates. Non-reputable services will charge you an arm and a leg! Most of the time, they charge you a large fee up front and then hit you with several more fees down the road. In fact, most non-reputable services will charge you extra for each debt that you are trying to settle (so if you have five credit cards they will charge you a fee for each one!). By the time you get done paying all of the fees that you are charged, you could've used that money to pay down some of your bills!

Another trap that non-reputable credit card counseling services may set up for you to fall into is the old…"we'll loan you the money you need so that you can pay off your bills" scenario.Be VERY WARY of these types of offers! Not only will the "loan" have an incredibly high interest rate, it will probably come with a lot of unattractive terms attached to it as well. For example, they may include a clause in the loan contract that would allow them to put a lien on your house should you fall behind on the payment terms.  This means that you could very well lose your house if you do not pay the loan off per the schedule that THEY set up! In fact, many "shady" credit counseling services WANT YOU TO FALL BEHIND on the payments so they can take your house and sell it for a profit! See, I told you they were NOT NICE!

You've Been Taken - What Do You Do?

If you have been "taken" by a non-reputable credit counseling service it is very important that you contact a consumer law attorney as soon as possible. They will advise you of your rights and discuss the best course of action. If the consumer law attorney feels that you have a strong case, he may represent you on a contingent fee basis (which means he won't charge you unless you win). Regardless of whether or not you decide to sue, it is very important that you report the counseling service to your state attorney general's office immediately. You should also file reports with the Better Business Bureau and the Federal Trade Commission as well. Non-reputable, shady credit counseling services need to be STOPPED…the more complaints filed against them, the better!

If you are in debt and in need of assistance, I truly hope that this HUB page hasn't discouraged you from working with a REPUTABLE credit counseling service. There are people out there who are care and believe it or not follow HONEST business practices! For more information about credit card counseling services, please read the HUB: Stay away from bad credit card and debt consolidation counseling services. How to tell the GOOD from the BAD! Hope it helps and may you soon be on the road to financial freedom and a debt free life!


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