Credit card payoff through debt management/credit counseling programs: be careful!

Our next-door neighbor in our office building, Tara McCarthy, was quoted in a Star Tribune article about a family who paid off $35,000 in credit card debt over four years and eight months. John and Cheryl Martin racked up their debt, but, as John said, “we really didn’t have much to show for all the money we spent.”

I think the Martins’ experience is probably typical. Most people probably spend $20-100 at a time, with a lot of smaller charges mixed in. Those add up fast. Really fast.

The Martins used the formal Lutheran Social Services debt management program. Tara McCarthy uses a less-formal method. Many consumers negotiate lower credit card interest rates and pay them off themselves.

Considering negotiating lower interest rate payments yourself. If you do decide to give credit counseling or debt management a try, be careful who you choose. There are a lot of fraudulent credit counseling companies out there. Remember that credit counseling is a for-profit business. If you have tried eliminating your debt yourself, be careful and look for a reputable service. From the FTC, here are a few tell-tale signs of a scam:

  • companies that want you to pay for credit repair services before they provide any services.
  • companies that do not tell you your legal rights and what you can do for yourself for free.
  • companies that recommend that you not contact a credit reporting company directly.
  • companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
  • companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.