Though credit cards may seem to be a blessing in disguise, if they aren’t used properly, you can soon turn it into a curse. Nothing can have a worse impact on your personal financial life than misusing your credit cards. Credit cards may fulfill your dream of buying something that you can’t afford with [...]]]>

Though credit cards may seem to be a blessing in disguise, if they aren’t used properly, you can soon turn it into a curse. Nothing can have a worse impact on your personal financial life than misusing your credit cards. Credit cards may fulfill your dream of buying something that you can’t afford with cash, but this is not the way to adopt in this tumultuous economic condition. If you think that you’ll get help of a professional agency every time you incur credit card debt, you’re probably mistaken as each service will tank your credit score as you’re not repaying as agreed. Debt consolidation can be a worthy alternative to trashing your credit score and this can certainly be adopted if you want to eliminate your debts. If you’re residing in Colorado Springs, you can get help from debt consolidation Colorado Springs company and forget your financial worries.

You can take out a debt consolidation loan

The debt consolidation option is available everywhere in whichever state you’re residing. You just have to take out a loan from a bank or a financial institution so that you may use the proceeds in repaying your multiple debt obligations. Soon after you finish paying back all your creditors, you have to start repaying the loan in single and affordable monthly payments. You can get immediate relief from your debts but you just have to make the payments on time so that the deal doesn’t get cancelled.

You can tap the home equity

If you’re cash poor but house-rich, you can tap the equity that you’ve accumulated in your home so that you can consolidate your unsecured debts with it. You can get the benefits of lower interest rates than the unsecured debt consolidation loan and the repayment terms also longer so that the debtor can repay his debts in small and reasonable monthly payments. You have to make the timely payments so that you don’t lose your home to a foreclosure.

Go for balance transfer method

Another do-it-yourself method is to transfer your high interest balance to a low interest card so that you don’t have to be subject to sudden hike in the interest rates after the completion of the introductory period. The introductory period is usually for less than 6 months during which the interest rate on the card remains either 0 or a very low rate. You should try your best to transfer the balance within the introductory period so that you don’t have to pay back the amount at an outrageously high interest rate.

Therefore, when you’ve already misused your credit cards and accrued a huge amount of debt load, you need not worry as debt consolidation is a worthy option that helps you repay your debts and also boost your credit score at the same time. If you reside in Colorado Springs, you should get help from a debt consolidation Colorado Springs company so that you can live debt free.

Some debt management company plans are not consolidation loans, they call their product a “consolidation plan” or “bill paying service”. They are simply bill paying companies that restructure [...]]]> Consolidation Plans

Also called Credit Counselor programs, Bill Paying Services, Budget Service Company programs, Consolidation Programs, Reduced Interest Payment Programs, One Pay, or Debt Management Company Plans)

Some debt management company plans are not consolidation loans, they call their product a “consolidation plan” or “bill paying service”. They are simply bill paying companies that restructure your debt instead of adding to it with a consolidation loan. The distinction is subtle, but consolidation plans are not loans, they don’t lend you any money, you are not taking on any new debt, you just send the monthly payment to them and they pay all your creditors.

With a consolidation plan, the company works as a liaison between you and your creditors, and negotiates with them to reduce or eliminate your interest and late fees, and they are usually successful at getting all the credit cards to drop the interest to 0. This allows the debt to be paid off much sooner, since you are only paying off principal and no interest.

Once you enroll in the program, your creditors going forward are forbidden to contact you. They can only contact your debt manager and not you. You send the bill paying company one monthly payment, and they in turn payoff all your creditors a little bit at a time. Usually when the smallest creditor is paid off, more cash is available to be applied to the remaining creditors, paying off those balances even more rapidly.

All the companies require your payment in money order form only to guarantee that you’ll never bounce a check, because they just forward the funds to your creditors. If they allowed you to mail in a check and it bounced, you might anger some of the creditors into kicking you out of the program, then you’re in trouble, because you interest shoots back up to 18% or whatever it was before.

There’s Profit, and Non-Profit Companies

Some of the “for profit” companies charge between 1 – 5% of your monthly payment as a service fee. The “for profit” companies usually have up front fees before they’ll even take you on as a client. Sometimes the fee is refundable after 30 days if you decide not to enroll, sometimes you’ll lose the fee, and sometimes it’s refunded at the end of the program, usually 48 months.

In Indiana a “Budget Service Company” may charge up to 15% of the total amount the debtor agrees to pay through the licensee divided into equal monthly payments over the term of the contract. There is a maximum initial payment of $50 which is deducted from the total contract fees. If you quit the program before it’s over (very foolish), all fees are non refundable.

The non-profit organizations  only charge a small  monthly fee or less to cover administrative costs. Many of your fees may be optional with non-profit organizations, because many costs are paid by pools from all the creditors, as well as other resources. Sometimes you only have to pay them if you can afford to. Usually it will cost you less to deal with the non-profit organizations than with the “for profit” companies.

Naturally, the “for profit” companies will try to talk you out of dealing with the non-profit organizations, scaring you with tactics like pointing out the fact that most of your fees with non-profit companies are paid by the creditors. Because of this, the “for profit” companies claim that the non-profit organizations are not acting in your best interest. However, you will still end up paying less. How can that not be in your best interest? Your up front fees with non-profit organizations are either cheaper or non existent, and your monthly payments may be lower also because they have lower per month fees.

Both types of companies whether they are “for profit” or not, all arrive at the same goal for you: getting your creditors to drop your interest to zero so you can just payoff the principle. It’s not the balance you owe that’s killing you, it’s the interest. Debt consolidation companies have agreements setup with over 3000 creditors, and are more influential with them than you are. You may not be able to convince all your creditors to reduce the interest rate on your own . Most creditors are willing to drop the interest rate, and late fees because it usually means they’ll recover their investment in you instead of writing off a loss, or wasting more money on collection agencies to hound you.

But usually one of the requirements of reducing the interest is that you must close all the accounts that you are consolidating. You are usually required to send your payments to the debt management company in cashier’s check or money order. Some organizations can also do electronic funds transfer. Never send cash, it’s not traceable. With all the accounts the debt management companies maintain, it’s hard to verify that all our checks are good, so they all want money orders.

WARNING: It may appear on your credit report that you are working with a credit counselor or debt management company. No company can tell you this won’t happen. It’s up to the individual creditors to decide whether the information should appear in your credit report. No matter what your debt manager tells you, they have no control over this.

Some IRS approved non-profit companies don’t require any money up front from you. They are much better than most payment plans, because you can check your current balances anytime by logging into their website. They are paid by the creditors in the program, and also receive money from any books and downloads you might choose to buy from their website, and by the optional donation you pay them when you sign up (usually $60). That’s a lot cheaper than the $300 that the profit oriented “bill payment” companies demand up front.

Up Front Fees:

Handling the up front fee is tricky. Some non-profit organizations usually allow you to enroll without paying this fee. But the profitable companies will ask you to send them a money order for $300 or more before they even take you in as a client. This is because they need to get all your account statements and balances and contact information to check with all your creditors to see who will drop the interest to 0%, and who will participate in the program at all. Car loans and home loans are out.

This preliminary work takes time and resources on your debt consolidation company’s part, so they want a some compensation up front. However, some of them are quite lacking about disclosing to you IN WRITING their complete user agreement until you have sent them your money. This is completely unfair and insulting to you and you should not sign up unless they have sent you at least the verbiage of what their final agreement is. Non-profit organizations usually have their agreement contracts online for you to read before you send them one penny. We’re not talking just marketing sales info, look for the actual legal agreement, which is usually found at the end of the enrollment page before you submit.

The reason you want to read this agreement first is maybe there is something there that you disagree with and would not sign. But some of the profit companies take your money order first, then send you a proposal with the final agreement. Then you see something you don’t like on the contract, the company begins to give you a bad feeling, and you want out. But you might lose your fee even though the salesman may have told you your up front fee is refundable, he did not tell you it’s only refundable at the end of the program 48 months later. Quit now and you forfeit your deposit. This is why it’s so important to get everything in writing before you enroll.

About Your Monthly Payment Quote: The Catch 22

When you first contact these companies to determine what your monthly payment will be, they can only estimate how much you’ll actually be paying, because they do not accurately know all your balances. You may think you know your balances, but when you send in your statements, they discover your balances are more than you told them, and that will jack up your payment from their original quote.

You have to send them your latest bill from each creditor, then they have to call them up and see who will participate in the program, and who will not, then once they have heard back from all your creditors, they can add it all up and tell you what your monthly payments will be. This is sort of a catch 22 for you because you don’t know if you want to enroll with this company, yet they can’t get you started without a deposit, so you have to send money to a company that you might not want to sign with. This is why we recommend the non profit organizations, because they either charge a small fee to get started, which is way cheaper, or sometimes no fee at all.

NEVER agree to enroll in the program until you have seen a contract specifically detailing YOUR entire consolidation program, including a listing of all the accounts and balances in the program, the interest if any, what your monthly payment will be, HOW MANY MONTHS, and any other little fees that they sneak past you. Any reputable company should give you your deposit back within 30 days if you don’t enroll. At the very least you should get some of it back. If you do not a written agreement, DO NOT SEND THEM MONEY! Assume every penny you send them is completely non-refundable. You need to know what accounts they are claiming will be paid under this program. If they don’t itemize this, don’t sign up.

TIP: When you itemize all the accounts you want to be included in the plan, make sure you have all your ducks in a row and give them all the information they need in one shot. Don’t go back to them after they went through all the trouble of determining your monthly payment and add another account to the pile. They’ll have to start over, that will increase your payments, accusations will fly, and it just becomes a big pain in the neck for everyone. Do your homework first, and send the consolidation company one packet containing everything they need to get started. Don’t spoon feed them information, as time is of the essence.

Some debt consolidators have clauses written into their contracts that say “You agree to hold us harmless….and you will not file any lawsuit against us”. DO NOT sign the contract if this clause is present. This means they can stop paying your creditors, you get in big trouble, and you can’t sue them for it. Just move on to the next company that does not have this clause. But this clause is OK if it is qualified with the statement “unless we are negligent or commit a crime…” Then it means you can sue them doing you wrong.

Do not sign their contract unless you agree with everything in it.

gas card with a balance of .$400 at 18% Master Card balance of…$6,000 at 14% VISA balance of…………… $8,000 at 15.9%, and department store card of $6,500 at 22%. You owe a total of………. $20,900.

Your local bank charges 12% interest for home equity loans and has [...]]]> Examples of Wise Consolidation

Your debts consist of:

gas card with a balance of .$400 at 18%
Master Card balance of…$6,000 at 14%
VISA balance of…………… $8,000 at 15.9%, and
department store card of $6,500 at 22%.
You owe a total of………. $20,900.

Your local bank charges 12% interest for home equity loans and has an $800 loan origination fee. Your strategy might be to borrow $20,900 with an equity loan from the bank to payoff all your balances, and close out the accounts. Now you’ll still owe $20,900 but at a lower APR of 12%. Also, at the end of the year, you are usually allowed to write-off the interest you paid, effectively making your APR even lower. Most equity loans are 15 year notes, so try to send in extra principal every month to accelerate that payoff time. Make sure your bank allows pre-payment and extra principal payments.

What if you Don’t Have Enough Equity to Consolidate all Debts

But supposing you only have $7,500 equity in your house. How can you consolidate all your debt with $7,500? You can’t, you’ll have to choose which accounts to payoff. The department store and gas card have the highest APR, so shoot for those. You’ll need to borrow $6900 with your equity loan. There is no reason to borrow more, and you should not either.

Sure you would like to buy down some of the interest with your equity, but if you don’t have enough to pay it off and close the account, then there is a very high risk that you’ll just run the balance back up again. Some accounts you can close, then just continue to pay them off, then you’re OK using the remainder of your equity balance to buy down whatever you can on the balance. But we cannot stress the importance enough that you must not let your balances go back up. Consolidation loans and equity loans are potentially dangerous in the wrong hands because you are adding another channel of credit, so use it wisely, and always be fully aware of what you are doing.

If you take out a consolidation loan, consider these simple rules:

NEVER, EVER, EVER, SIGN A CONSOLIDATION LOAN WITHOUT FULL DISCLOSURE IN WRITING OF:

1) The principal amount that you are borrowing.

2) What the interest rate APR will be.

3) How many payments you will pay.

4) Closing costs, if any.

THIS SHOULD BE CLEARLY SPELLED OUT IN THE CONTRACT. IF IT’S NOT ON THE CONTRACT, DON’T SIGN!

If you don’t know how to check their math and verify the monthly payments, don’t sign the loan papers, you have no business taking out a loan. You’ll have no recourse later because in court they’ll just say “you signed the loan”. Verbal statements or claims made by salespeople do not hold up in court. There are many unscrupulous “lenders” out there who prey on people who are naive or have bad credit. They’ll offer you the world to get you to sign up to their program.

If you chose a consolidation loan instead of a consolidation plan, be sure you use the entire amount of the loan to payoff your accounts, and close all the accounts you are paying off. DO NOT keep any cash for yourself to spend. Use all the funds to payoff the debt. No clothes buying, no dinners, no trips, no nothing. Borrow just what you need to payoff your accounts.

Account Servicing: That portion of the credit management cycle that includes monitoring the status of accounts of indebtedness, monitoring records of current debts, billings for amounts due, collecting amounts due, handling debtor correspondence, performing follow-up functions, and providing accurate reporting of debt portfolios.

Administrative Costs: Additional costs incurred in processing [...]]]>

Account Servicing: That portion of the credit management cycle that includes monitoring the status of accounts of indebtedness, monitoring records of current debts, billings for amounts due, collecting amounts due, handling debtor correspondence, performing follow-up functions, and providing accurate reporting of debt portfolios.

Administrative Costs: Additional costs incurred in processing and handling a debt because it has become delinquent.  Administrative costs should be based on either the terms of a contractual agreement, or the actual costs incurred or cost analyses, which estimate the average of actual additional costs incurred for particular types of debt at similar stages of delinquency.  Administrative costs should be accrued and assessed from the date of delinquency.

Administrative Offset or Offset: Withholding funds payable by the United States (including funds payable by the United States on behalf of a state government) to, or held by the United States for, a person to satisfy a debt owed by the person.  The term “administrative offset” can include, but is not limited to, the offset of Federal salary, vendor, retirement, and Social Security benefit payments.  The terms “centralized administrative offset” and “centralized offset” refer to the process by which the Treasury Department’s Financial Management Service offsets Federal payments through the Treasury Offset Program.

Agency or Federal Agency: A department, agency, court, court administrative office, or instrumentality in the executive, judicial, or legislative branch of the Federal Government, including government corporations.

Asset: Any item of economic value, either physical in nature (such as land) or a right to ownership, expressed in cost or some other value, which an individual or entity owns.

Certified Appraisal: An appraisal prepared by a person who has satisfied the minimum requirements for certification as established by the Appraisal Qualification Board of the Appraisal Foundation, which include passing a suitable written examination administered by a State or territory.

Claims Collection Litigation Report (CCLR): A report developed by the Department of Justice for organization unit use in referring debts to the Department of Justice for litigation and enforced collection.  The CCLR is also used for the referral of debts to the Department of Justice for concurrence on a proposed suspension or termination of collection action (i.e., write-off).

Close-Out: An action which occurs concurrently with or subsequent to an organization unit’s decision to write-off a debt for which the organization unit has determined that future additional collection attempts would be futile.  At close out, an organization unit reports to the IRS the amount of an inactive debt as income to the debtor on IRS Form 1099-G.  No additional collection action may be taken by the organization unit after issuing the 1099-G.

Collection: The process of receiving amounts owed to the Government, such as payment on a debt.

Collection Agency: A private sector entity whose primary business is the collection of delinquent debts.

Commerce Debt: A debt owed to a Commerce entity by a person.

Commerce Entity: A component of the Commerce Department, including offices or bureaus.  Commerce offices currently include the Office of the Secretary of Commerce and the Office of Inspector General.  Commerce bureaus currently include the Bureau of Industry and Security, the Economics and Statistics Administration (including the Bureau of Economic Analysis and the Bureau of the Census), the Economic Development Administration, the International Trade Administration, the Minority Business Development Agency, the National Oceanic and Atmospheric Administration, the National Telecommunications and Information Administration, the U.S. Patent and Trademark Office, and the Technology Administration (including the National Institute of Standards and Technology and the National Technical Information Service).

Commercial Organization: A for-profit business, including individuals operating commercial enterprises as sole proprietorships, limited and general partnerships, and corporations; or a not-for-profit organization, including private educational and health services institutions, cooperatives, and corporations.

Compromise: To accept less than the full amount of the debt owed from the debtor in satisfaction of the debt.  The organization unit reports the difference between the amount owed and the amount accepted (the compromised amount) to the IRS on Form 1099-G as income to the debtor, provided that the debt was not compromised due to a dispute over the debt.

Consumer: Signifies non-commercial (personal) activity.

Contingencies: An existing condition, situation, or circumstance which involves uncertainty and which could result in gains or losses.  For example, guaranteed loans represent contingent liabilities; in the event of default by the borrowers, the Government would be liable to cover the losses of the guarantors, and thereby sustain the loss itself.

Cooperative Agreement: The legal instrument reflecting a relationship between the Department of Commerce and a recipient whenever: 1) the principal purpose of the relationship is to transfer money, property, services, or anything of value to accomplish a public purpose of support or stimulation authorized by Federal statute and 2) substantial involvement (e.g., collaboration, participation, or intervention by DOC in the management of the project) is anticipated between DOC and the recipient during performance of the contemplated activity.  Cooperative agreements are subject to the same OMB, Treasury, and other Federal laws and policies as grants.

Credit Extension: That portion of the credit management cycle involving review and approval of requests for short-term or long-term credit.

Credit Management Cycle: The total credit management process, which includes credit extension, servicing of accounts, collection of delinquent accounts, and write-off of uncollectible accounts.

Creditor Agency: The agency to which the debt is owed, including a debt collection center when acting in behalf of a creditor agency in matters pertaining to the collection of a debt (as provided in Sec. 550.1110).

Credit Reporting Bureau: A private sector entity which collects financial information on debtors and whose reports on debtors reflect information received from the public and private sectors.

Credit Report: A report containing detailed information on a person’s credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries.  It can be obtained by prospective lenders with the borrower’s permission, to determine his or her creditworthiness.

Creditworthy: A favorable determination entitling an applicant to receive credit.  This status is based on the perceived ability and willingness of the borrower to repay the debt and the lending organization’s level of acceptable risk.  It also considers other Federal obligations that could jeopardize or be jeopardized by the new debt under consideration.

Day: A calendar day except when express reference is made to business day, which reference shall mean Monday through Friday.  For purposes of time computation, the last day of the period provided will be included in the calculation unless that day is a Saturday, a Sunday, or a Federal legal holiday; in which case, the next business day will be included.

Debt: Any amount of money, funds, or property that has been determined by an appropriate official of the Federal Government to be owed to the United States by a person.  As used in this part, the term “debt” can include a Commerce debt but does not include debts arising under the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.).  (Also see definition of “person.”)

Debt Collection: That portion of the credit management cycle dealing with the recovery of amounts due after routine account servicing fails.  This activity includes the assessment of the debtor’s ability to pay, the exploration of possible alternative arrangements to increase the debtor’s ability to repay and other efforts to secure payment.

Debt Collection Center: The Department of the Treasury or other Government agency or division designated by the Secretary of the Treasury with authority to collect debts on behalf of creditor agencies in accordance with 31 U.S.C. 3711(g).

Debt Collection Improvement Act of 1996 (DCIA): Due to a steady increase in the amount of delinquent non-tax debt to the U.S., and concern that appropriate actions were not being taken to collect this delinquent debt, Congress passed the DCIA in 1996.  This law centralized the government-wide collection of delinquent debt and gave Treasury significant new responsibilities in this area.

Debtor: A person who owes a debt to the United States.

Delinquent Debt: A debt that has not been paid by the date specified in the agency’s initial written demand for payment or applicable agreement or instrument (including a post-delinquency payment agreement) unless other satisfactory payment arrangements have been made.

Delinquent Commerce Debt: A delinquent debt owed to a Commerce entity.

Disposable Pay: Has the same meaning as that term is defined in 5 CFR 550.1103.

Employee or Federal Employee: A current employee of the Commerce Department or other Federal agency, including a current member of the uniformed services, including the Army, Navy, Air Force, Marine Corps, Coast Guard, Commissioned Corps of the National Oceanic and Atmospheric Administration, and Commissioned Corps of the Public Health Service, including the National Guard and the reserve forces of the uniformed services.

FCCS: The Federal Claims Collection Standards, which were jointly published by the Departments of the Treasury and Justice and codified at 31 CFR parts 900-904.

Federal Credit Reform Act: The Act was established in 1990 for the purposes to — (1) measure more accurately the costs of Federal credit programs; (2) place the cost of credit programs on a budgetary basis equivalent to other Federal spending; (3) encourage the delivery of benefits in the form most appropriate to the needs of beneficiaries; and (4) improve the allocation of resources among credit programs and between credit and other spending programs.

Financial Contract: An agreement or contract made by an organization unit, the primary purpose or result of which is to make private credit available, or available on more favorable terms than in the absence of the contract, to a non-Federal entity by indirectly or directly assuming the risk involved.  Included are financial contracts such as agreement to pay all or part of the principal or interest on the debt obligation of a non-Federal entity (debt service payments), financial lease agreements for assets and project financing and repayment arrangements.  For the purpose of this Handbook, “financial contracts” will be considered as “loan guarantees.”

Financial Management Service: Financial Management Service is a bureau of the Treasury Department, which is responsible for the centralized collection of delinquent debts through the offset of Federal payments and other means.

Foreclosure: A method of enforcing payment of a debt secured by a mortgage by seizing the mortgaged property.  Foreclosure terminates all rights, which the mortgagor has in the mortgaged property upon completion of due process through the courts.

Grants: The legal instrument reflecting a relationship between the Department of Commerce and a recipient whenever: (a) the principal purpose of the relationship is to transfer money, property, services, or anything of value in order to accomplish a public purpose of support or stimulation authorized by Federal statute and (b) no substantial involvement is anticipated between the Department and the recipient during the performance of the contemplated activity.

Inactive Debt: A debt, which has been written off and removed as an active receivable.  A record of the account may still be held by the organization unit for possible future offset or collection as well as for future credit prescreening purposes.

Loan, Direct: An obligation created when:  (1) the Government agrees to disburse funds to and contracts with the debtor for repayment, with or without interest; (2) the Government acquires a guaranteed loan in satisfaction of a default or other claim; (3) a Federal agency purchases non-Federal loans through secondary market operations; or (4) an organization unit sells assets on credit terms of ninety (90) days or more.

Loan, Guaranteed: A contingent liability created by any debt obligation on which the organization unit pledges to pay part or all of the amount due to a lender or holder in the event of default by the borrower.

Loan, Insurance: Type of guarantee in which any organization unit pledges the use of accumulated insurance premiums to secure lenders against default on the part of borrowers.  For the purposes of this Handbook, loan insurance is considered to be a “loan guarantee” and the term “insured loan” is considered to be a “guaranteed loan.”

Loan, Participation: A loan consisting of both direct and guaranteed portions.

Non-Performing Account: An account past due six (6) months or more.

Payment Agency or Federal Payment Agency: Any Federal agency that transmits payment requests in the form of certified payment vouchers, or other similar forms, to a disbursing official for disbursement.  The payment agency may be the agency that employs the debtor.  In some cases, the Commerce Department may be both the creditor agency and payment agency.

Penalty: A charge assessed for delinquent debts.  The rate to be assessed is set by law at no more than six (6) percent per year or such other higher rate as authorized by law.

Person: An individual, corporation, partnership, association, organization, State or local government or any other type of entity other than a Federal agency.

Principal: The amount owed by the debtor and owed to the Government which excludes interest, penalties, administrative charges, loan fees, and prepaid charges.

Receivable: Amount owed the Government by an individual, organization, or other entity upon completion of the acts giving rise to such claims.  Examples of receivables generated by normal functions of Government agencies include amounts due for loans, sales of goods and services, fines, penalties, forfeitures, interest, overpayments, fees, duties, rents, royalties, claims, damages, audit disallowances, and travel advances.

Receivable, Current: Indicates that the receivable will be due within twelve (12) months of the reporting period.

Receivable, Noncurrent: Indicates that the receivable will not be due within twelve (12) months of the reporting period.

Referral for Litigation: Referral of debts to the Department of Justice for appropriate legal proceedings; or, where the organization unit has statutory authority for handling its own litigation, referral to the office within the organization unit that is responsible for litigation.

Repayment Agreement: Establishes the terms and conditions governing the recovery of a debt by the lender from the borrower when credit is initially extended or a debt is rescheduled.  Repayment agreements should be reduced to writing as soon as possible after such agreements are reached.

Reschedule: To establish new terms and conditions (i.e., modify the existing terms) to facilitate repayment of a debt.  Also referred to as restructuring, refinancing, and re-amortizing.

Salary Offset: Salary offset is a type of administrative offset to collect a debt under 5 CFR 5514 by deductions(s) at one or more officially established pay intervals from the current pay account of an employee without his or her consent.

Suspend Collection Action: To place collection action temporarily in abeyance due to the existence of a particular set of circumstances.  Suspension of collection action is most appropriate in those cases where an organization unit has reason to believe that the debtor will have future ability to repay the debt and that active collection of the debt at the present time would not be productive.

Tax Refund Offset: The reduction of a debtor’s tax overpayments by the amount of legally enforceable debt owed to a Federal agency.  A tax refund offset is a type of administrative offset.  Tax refund offset is defined in 31 CFR 285.2(a).

Taxpayer Identification Number (TIN): The Social Security Number (SSN) for individuals or the Employee Identification Number (EIN) for business organizations or non-profit entities.

Terminate Collection Action: To cease active collection of a debt.  The act of removing the debt from accounting records is to write it off.  A decision to terminate collection action precedes or occurs concurrently with the write-off of the account.

Waive: To grant relief from all or part of a debt under statutory authority.

Workout: A process for consideration of rescheduling or restructuring terms and conditions of a seriously delinquent loan to facilitate repayment and meet lending criteria and objectives. A workout is initiated when it becomes evident that the original terms cannot be fulfilled. For loans, grants, cooperative agreements, contracts, and other receivables, workout may also mean intensified collection action, including identification of appropriate collection mechanisms.

Workout Group: A group established within an organizational unit with the sole purpose of resolving seriously delinquent debts, including those debts, which demand extreme measures in order to protect the Government’s interest.

Write-Off: A determination by the organizational unit head or his/her designee, after all appropriate collection tools have been used and all appropriate concurrences for write-off have been received by designated Department officials and/or the Department of Justice, that a debt is uncollectible.  Active collection on an account ceases and the account is removed from an entity’s receivables.  Written off receivables may be maintained as inactive debts.

[  Confidentiality. Arbitration is a private process. There is no public record of the proceedings.

[  Limited Discovery. Extensive discovery is avoided.

[  Arbitrators arrange for limited exchange of documents, witness lists, and depositions appropriate to the particular dispute.

[  Speed. There is no docket or [...]]]> What are the benefits of arbitration?

[  Confidentiality. Arbitration is a private process. There is
no public record of the proceedings.

[  Limited Discovery. Extensive discovery is avoided.

[  Arbitrators arrange for limited exchange of documents, witness lists, and depositions appropriate to the particular dispute.

[  Speed. There is no docket or backlog in arbitration.
Hearings are scheduled as soon as the parties and the arbitrator have dates available.

[  Expert Neutrals. The arbitrators have expertise in the subject matter in dispute, as well as training in the arbitration process.

[  Cost Savings. Because of the limited discovery and informal hearing procedures, as well as the expedited nature of the process, the parties save on legal fees and transactional costs.

[  Preservation of Business Relationships. In most instances, litigation between professionals and their clients destroys the working relationship. Arbitration is less adversarial and, because of its informal nature, it is more likely that the parties will be able to continue their business relationship.

[  Parties may arbitrate disputes either by inserting a future-disputes clause into a contract or by submitting an existing dispute to arbitration

Cost of Arbitration can Sometimes be Higher

To deter frivolous complaints, the cost of arbitration can sometimes be significantly higher than court fees, making it financially impossible for some consumers to seek relief.  However in the case of Williams v. Aetna Finance (83 Ohio St. 3d 464; 700 N.E. 2d 859, ll/4/98), the Supreme Court of Ohio struck down a clause which required a consumer to pay large fees simply to advance a case to arbitration.   Citing a 1993 decision against ITT Finance Co., the court stated that "[i]n a dispute over a loan of $2,000 it would scarcely make sense to spend a minimum of $850 just to obtain a participatory hearing.”  The Williams case involved a “pitchman” who was paid referral fees to bring homeowners to a finance company for expensive home equity loans.

Arbitration is the referral of a dispute to one or more impartial persons for final and binding determination. It is designed to be private, informal, quick, practical, and economical. Parties can exercise additional control over the arbitration process by adding specific provisions to their contract’s arbitration clause or, when a dispute arises, by modifying [...]]]>  

Arbitration is the referral of a dispute to one or more impartial persons for final and binding determination. It is designed to be private, informal, quick, practical, and economical. Parties can exercise additional control over the arbitration process by adding specific provisions to their contract’s arbitration clause or, when a dispute arises, by modifying certain of the arbitration rules to suit a particular dispute. Stipulations may be made regarding confidentiality of proprietary information, evidence, locale, the number of arbitrators, and issues subject to arbitration, as examples.

The parties may also provide for expedited arbitration procedures, including expedited rendering of the award, if they anticipate a need for hearings to be scheduled on short notice.

An important feature of arbitration is its informality. Under the standard rules, the procedure is relatively simple: legal rules of evidence are not applicable; there is no motion practice or court conference; there is no requirement for transcripts of the proceedings or for written opinions of the arbitrators. Although there is no formal discovery process, the rules allow the arbitrator to require production of relevant documents, the deposition of factual witnesses, and an exchange of reports of expert witnesses. The standard  rules are flexible and may be varied by mutual agreement of the parties.

The fact that the arbitrators are trained and have professional expertise is also important. Arbitrators are selected for specific cases because of their knowledge of the subject matter. Based on that experience, arbitrators can render an award grounded on thoughtful and thorough analysis.

Most parties provide for arbitration of disputes because they are seeking a final and binding resolution of their business conflicts. Court intervention and review are limited by applicable state or federal arbitration laws; award enforcement is facilitated by those same laws.

Another important advantage of arbitration is that it is designed to be private, having no public record of the dispute or of the facts presented in resolving the dispute.

Companies are turning to mandatory arbitration in hopes of resolving disputes more quickly and less expensively than in the courts.  But lawyers and other experts say that for the consumer, arbitration can cost more, with fees that could run into thousands of dollars.  Arbitration also permits less evidence-gathering that can help win a [...]]]> ARBITRATION

Companies are turning to mandatory arbitration in hopes of resolving disputes more quickly and less expensively than in the courts.  But lawyers and other experts say that for the consumer, arbitration can cost more, with fees that could run into thousands of dollars.  Arbitration also permits less evidence-gathering that can help win a case, usually doesn’t allow for appeals, and may be less likely to result in a victory.

The growing use of mandatory arbitration clauses is beginning to attract the attention of regulators at the Federal Reserve Board and Federal Trade Commission, who fear that consumers may be losing significant rights without realizing it.  The Federal Reserve Board is looking carefully at the use of arbitration clauses in all consumer credit agreements, including mortgages and car loans, to make sure “consumers are not being deprived of their rights.”

Clauses Obscure

The problem is that many consumers agree to mandatory arbitration without knowing it.  The clauses may be buried in the pile of documents a consumer is asked to sign quickly, such as during a real estate settlement or tacked onto the back of a sales receipt.  A growing number of companies – among them banks, computer makers, insurance firms, and car dealers – that are rewriting the fine print of their contracts and sales agreements require that consumers agree, in advance, to give up their right to sue.   Such clauses also bar class-action lawsuits.

Many credit card companies, large and small, also are turning to arbitration.   First USA Bank, the largest issuer of Visa cards with 58 million customers, began requiring mandatory arbitration in 1997.  American Express customers, by using their card after June 1, 1999, will give up their right to sue the company.

If you aren’t disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling service. Your creditors may be willing to accept reduced payments if you enter a debt repayment [...]]]>  

Credit Counseling

If you aren’t disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling service. Your creditors may be willing to accept reduced payments if you enter a debt repayment plan with a reputable organization. In these plans, you deposit money each month with the credit counseling service. Your deposits are used to pay your creditors according to a payment schedule developed by the counselor. As part of the repayment plan, you may have to agree not to apply for — or use — any additional credit while you’re participating in the program.

A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counseling service for an estimate of the time it will take to complete the plan. Some credit counseling services charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant charge over time. Some credit counseling services are funded, in part, by contributions from creditors.

While a debt repayment plan can eliminate much of the stress that comes from dealing with creditors and overdue bills, it does not mean you can forget about your debts. You still are responsible for paying any creditors whose debts are not included in the plan. You are responsible for reviewing monthly statements from your creditors to make sure your payments have been received. If your repayment plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, you are responsible for making sure these concessions are reflected on your statements.

A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments may have been late or missed altogether, or that there are write-offs or other concessions. A demonstrated pattern of timely payments will help you obtain credit in the future. See our Brochure on Choosing a Credit Counselor.

Auto and Home Loans

Debt repayment plans usually cover unsecured debt. Your auto and home loan, which are considered secured debt, may not be included. You must continue to make payments to these creditors directly.

Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You would avoid the added costs of repossession and a negative entry on your credit report.  See our Brochure on Vehicle Repossession.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure… Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a housing counseling agency near you.  See our Brochure on How to Avoid Foreclosure.

1.  Using credit for items that used to be purchased with cash.

2.  Getting a loan to pay existing debt.

3.  Charging more each month than you make in payments.

4.  Making only the minimum required payment.

5.  Juggling rent or mortgage and other large bills to pay debts.

Harassment

Debt collectors may not harass, oppress, or abuse any person.  They may not:

*  use threats of violence or harm to the person, his/her property, or reputation;

* publish a list of consumers who refuse to pay their debts (except [...]]]> WHAT TYPE OF DEBT COLLECTION PRACTICES ARE PROHIBITED?

Harassment

Debt collectors may not harass, oppress, or abuse any person.  They may not:

*  use threats of violence or harm to the person, his/her property, or
reputation;

* publish a list of consumers who refuse to pay their debts (except
to  a credit bureau);

*   use obscene or profane language;

*  repeatedly use the telephone to annoy someone;

*  telephone people without identifying themselves;

*  make anonymous phone calls or charge the debtor for collect
calls  or telegram fees;

*  advertise your debt.

False statements

Debt collectors may not use any false statements when collecting a debt.   They may not:

* falsely imply that you have committed a crime;

* falsely imply that they are attorneys or government representatives;

*  misrepresent the amount of your debt;

* indicate that papers being sent to you are legal forms when
they’re not or indicating papers are not legal forms when they
are;

*  state you will be arrested if you do not pay your debt;

* state they will seize, garnish, attach, or sell your property or wages
or that actions such as a law suit will be taken against you, unless
the collection agency or creditor intends to do so, and it is legal to
do so;

*  give false credit information about you to anyone;

*  send you anything that looks like an official document from a court
or government agency when it is not;

*  use a false name.

Unfair practices

Debt collectors may not engage in unfair practices in attempting to collect a debt. For example, collectors may not:

*  collect any amount greater than your debt, unless allowed by law;

* deposit a post-dated check prematurely;

* take or threaten to take your property unless this can be done
legally;

*  contact you by postcard;

*  apply a payment to any debt you believe you do not owe.

The Fair Debt Collection Practices Act is “self-enforcing,” meaning there is no agency to enforce the Act.

You can sue a collector in a state or federal court within one year from the date you believe the law was violated. The Act provides for recovery of attorneys fees plus actual and punitive damages and court costs in the event that the consumer prevails up to $1,000. Class actions are also possible under the Act with damages of the lesser of $500,000 or 1 percent of net worth.

If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a “debtor.” As a debtor you are expected to meet the terms of your contract and make your payments on time. If you fall behind in repaying your creditors, or [...]]]> DEBT AND DEBT COLLECTORS

If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a “debtor.” As a debtor you are expected to meet the terms of your contract and make your payments on time. If you fall behind in repaying your creditors, or an error is made on your account, your creditor may turn your account over to a “debt collector.”

FALLACIES

Fallacies regarding debts and debt collectors or collection agencies are:

u  That creditors are unable to or are forbidden by law from turning accounts over to a collection agency. This is simply not true. Debts arising out of virtually all transactions can and could be turned over to collection agencies for collection efforts.

u  That if a person is making any effort at paying a debt, it cannot be turned over to a collection agency nor can a lawsuit be filed. Again, this is not true. A creditor is entitled to be paid according to the terms of the contract and has every right to resort to collection agencies or lawsuits in order to collect, if necessary.

u  That the creditor must comply with the Federal Fair Debt Collection Practices Act in collecting their accounts. The Act does not apply to the creditor or employees of creditors in collecting their own debts in their own names; the act only applies to third party collectors such as collection agencies and attorneys who collect debts on a regular basis.

federal fair debt collection practices act

If your delinquent account has been turned over to a third party collector, the Federal Fair Debt Collection Practices Act requires that debt collectors treat you fairly by prohibiting certain methods of debt collection. The act is designed to curtail unfair, abusive, or outrageous practices and tactics by third party collectors. It does not forbid collection contacts or collection efforts nor curtail legitimate activities.

HOW MAY A DEBT COLLECTOR CONTACT YOU?

A collector may contact you in person, by mail, telephone, telegram, or FAX. However, a debt collector may not contact you at unreasonable times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves.

CAN YOU STOP A DEBT COLLECTOR FROM CONTACTING YOU?

You may stop a collector from contacting you by writing a letter to the collection agency telling them to stop. Once the agency receives your letter, they may not contact you again except to say there will be no further contact or to indicate that a certain specific action is about to take place.

MAY A DEBT COLLECTOR CONTACT ANYONE OTHER THAN YOU CONCERNING YOUR DEBT?

If you have an attorney, the debt collector may not contact any person other than your attorney unless there is no response from the attorney within a reasonable time. If you do not have an attorney, a collector may contact other people, but only to find out where you live and work. Collectors usually are prohibited from contacting such permissible third parties more than once. In most cases, the collector is not permitted to tell anyone other than you and your attorney that you owe money.

WHAT INFORMATION IS THE DEBT COLLECTOR REQUIRED TO TELL YOU ABOUT THE DEBT?

Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

WHAT IF I DON’T OWE THE DEBT?

If you dispute the debt in writing within thirty days of the initial contact, collection activities must cease until the debt is versified.

The joys and anticipation of owning a new home are sometimes crushed when the application for mortgage financing is turned down by the lender. In our economy, it is unfortunate, but some people may go through tough times. When times are hard, the most permanent impact is usually your credit [...]]]> Concerned about Rejection?

The joys and anticipation of owning a new home are sometimes crushed when the application for mortgage financing is turned down by the lender. In our economy, it is unfortunate, but some people may go through tough times. When times are hard, the most permanent impact is usually your credit history. A person’s credit history is the first thing a lender notices and imperfect credit is usually the reason a loan is denied. If your loan request has been denied, you should understand why the loan was denied and what steps you can take to correct the problem or make sure that it does not happen again in the future. The following information helps you understand the most common reasons for loan denials and corrective measures you can take, and it describes some alternatives that exist especially for low and moderate income home buyers.

Possible Causes for Rejection and Your Alternatives

Appraised Value Too Low…

One of the factors considered by the lender is the ratio of the loan amount to the sale price or the appraised value of the property, whichever is lower. If the appraisal on the property is substantially lower than the purchase price, the loan-to-value ratio, or LTV, may be higher than the lender will, or can legally, approve. If you have applied for a maximum loan amount, 90 to 95 percent of the purchase price, a low appraisal may make your requested loan too large. Your alternatives in this situation will depend upon the reasons for the low valuation.

If the purchase price is simply higher than the prevailing prices being paid in the general area, you can try to renegotiate the price with the seller down to a level more in line with the market and one which the lender would accept in order to approve your loan. If this is not possible, your only other solution is probably accepting a lower loan amount, assuming you have sufficient funds to cover the additional down payment.

Inadequate Funds…

Based on the financial information and the verification of deposit, the lender may have determined that you do not have enough cash to make a down payment and cover closing costs. Usually, these funds may not come from borrowing.  However, a gift from a relative can be used as long as no repayment of the money is expected. Other solutions include getting the seller to take back a second mortgage which would reduce the down payment requirement (assuming you can still qualify with the additional loan payments), or getting the seller to pay some of the closing costs, such as the origination fees. Finally, you could correct this problem by simply waiting, providing you institute a savings program in the meanwhile.

Insufficient Income…

In assessing your ability to repay the requested loan, lenders look at the amount of your monthly income in relation to your proposed mortgage payments and to all of your monthly debt and installment loan payments. Generally speaking, your mortgage payment should not be more than 28 percent of your monthly gross income, and your total debt, including mortgage payments and other installment payments, should not be more then 36 percent. The percentages are slightly higher for FHA loans. These ratios are only guidelines, but if yours are substantially higher, say 35 percent and 42 percent, they are well beyond industry norms and can cause denial of the loan.

Sometimes, particularly if your credit card record is very good, if you can show that you are already carrying that much housing expense through rent or mortgage payments, you may be able to convince the lender to reconsider. This is an example of why full and accurate disclosure on the loan application works in your favor, even though it may not be obvious at the time.

If your personal circumstances have changed since the submission of the loan application let the loan officer know. An impending salary increase or bonus or new employment, for you or your co-borrower, may improve the financial picture presented on the application. These changes, of course, will need to be documented and verified before the lender will reconsider the loan request.

Too Many Debts…

In some cases, it is not only the amount of debt owed by an applicant that prevents qualifying for the loan. Extensive use of numerous credit cards and revolving accounts with evidence of increasing account balances that are close to the card issuers’ debt limits may be enough to kill the application. The primary solution to this problem is to pay off some of the accounts to bring down outstanding obligations, as well as the number of creditors.

Unsatisfactory Credit History…

Nothing can be more damaging to your loan request than a history of poor debt repayment practices. If the credit report shows frequent late charges, past due accounts, judgments, or bankruptcy; chances for approval of the loan are slim. Lenders may stretch their guidelines on debt ratios or income requirements, but have little tolerance for a bad credit record. Even low loan-to-value ratios and debt ratios cannot offset an

unsatisfactory credit history.

If your loan is turned down because of a poor credit report, you may request a free copy of the report from the credit report company, which will be identified in a notice from the lender. Examine the credit report carefully to see if it is up to date and accurate. The credit bureau must correct any errors in the report. If there are unsettled disputes over certain accounts, it must also include your side of the argument in the report. Even if the name on the report seems to be you, make sure all of the accounts and references apply to you. Many people have the same name, and improper recording of data occurs.

If the adverse items on the report occurred because of illness, marital problems, job layoff, or other temporary circumstances and were confined to a particular period of time, you should have provided the loan officer with a written explanation at the time the loan application was taken or at some other point in the process. If you didn’t do it then, do it now. Assuming there has been sufficient time since the problems occurred for you to regain financial stability and demonstrate prompt payment of your obligations, there is a good chance the loan officer will reconsider the loan request. Many lenders look for one year’s clean payment record to offset past credit problems. If the credit report is accurate and you have a questionable credit history, you need to start repaying outstanding balances on time in order to reestablish an acceptable record. It may take time, but there is no alternative when this problem stands between you and owning a home.

Alternatives for Low and Moderate-Income Home Buyers

Many lenders participate in housing programs designed for low and moderate income home buyers who would not qualify for home loans under standard lending requirements. These programs are sponsored by both governmental and private organizations. If you have a good credit history, or have not established a credit history at all, they may provide a source of financing for your home purchase.

OFFER OF NEW CREDIT CARD

Sometimes the collectors of old debt offer a new credit card if the consumer will transfer part or all of the old debt to the credit card; other times they simply request payment. These collectors of old debt often fail to inform the consumer that if he or [...]]]>  

OFFER OF NEW CREDIT CARD

Sometimes the collectors of old debt offer a new credit card if the consumer will transfer part or all of the old debt to the credit card; other times they simply request payment. These collectors of old debt often fail to inform the consumer that if he or she transfers part or all of the balance of the old debt to the new credit card, acknowledges the old debt, or makes payment toward the old debt, that debt is renewed and the owner of that debt may once again sue and use other legal remedies to collect the debt.

The collector of old debt may use this technique to trick the consumer into renewing the old debt. This may be an illegal collection practice in violation of the FDCPA.

Courts have held that a lawsuit filed to collect a time-barred debt violates the FDCPA. However, the collector in the above example does not sue, it merely sends a letter asking the consumer to transfer the balance of his or her old debt to a new credit card.

DECEPTIVE AND MISLEADING ASPECT

The deceptive and misleading aspect of this practice is the failure of the collector to inform the consumer that if he or she transfers part or all of the balance of the old debt to the new credit card, acknowledges the old debt, or makes payment toward the old debt, that debt is renewed and the consumer may once again be sued (and use other legal remedies employed) to collect that old debt.

REMEMBER….If you have an old debt which is time-barred and cannot be collected by lawsuits, wage garnishment, liens on real estate, etc., and you transfer the balance, acknowledge the old debt, or pay on the debt, it is renewed and can be collected by the above legal means.

The federal law, the Fair Debt Collection Practices Act (“FDCPA”), protects consumers from abusive or harassing, false or misleading, and/or unfair practices of third party debt collectors or attorneys attempting to collect debts incurred for personal, family, or household purposes. Business or agricultural debts are not covered by the [...]]]> FAIR DEBT COLLECTION PRACTICES ACT

The federal law, the Fair Debt Collection Practices Act (“FDCPA”), protects consumers from abusive or harassing, false or misleading, and/or unfair practices of third party debt collectors or attorneys attempting to collect debts incurred for personal, family, or household purposes. Business or agricultural debts are not covered by the FDCPA.

The FDCPA does not apply to creditors when they obtained the debt before default. However, the buyers of old debt obtained the obligation after it had fallen into default; therefore, they are debt collectors covered by the FDCPA.

TIME-BARRED DEBTS

A new practice has arisen in the debt collection industry. Old, charged off debt is packaged and sold to other financial entities for as little as a penny or less for a dollar of old debt. These debts are old and often barred by the statute of limitations which limits the [...]]]>  

TIME-BARRED DEBTS

A new practice has arisen in the debt collection industry. Old, charged off debt is packaged and sold to other financial entities for as little as a penny or less for a dollar of old debt. These debts are old and often barred by the statute of limitations which limits the period of time during which a lawsuit may be filed to collect the debt.

Thus, a time-barred debt is one which can no longer be collected by legal means due to the passage of time, e.g.¾lawsuits, wage garnis-hment, liens on real estate, etc. These buyers of old debts are “debt collectors” covered by the Fair Debt Collection Practices Act.

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company’s location.

Some businesses that [...]]]> DAMAGE CONTROL

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company’s location.

Some businesses that offer debt counseling and reorganization plans may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing either to explain certain costs or to mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a Chapter 13 bankruptcy, tell you everything that’s involved, or help you through what can be a complex and lengthy legal process.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on advance-fee loan guarantees. They may be illegal. Many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that it is likely. Under the federal Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or receive payment until you’ve received the loan.

You should also avoid credit repair clinics. Companies coast to coast appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. They don’t deliver. What’s more, they can’t deliver: They can’t do anything for you that you can’t do for yourself. After you pay them hundreds — or even thousands — of dollars in up-front fees, they can do nothing to improve your credit report. Indeed, many simply vanish with your money. Only time and a conscientious effort to repay your debts will improve your credit report.

If you’re thinking about getting help to stabilize your financial situation, be cautious.

u  Find out what services the business provides and what it costs.

u  Check out any company with your local consumer protection office and the Better Business Bureau in the company’s location. They may be able to tell you whether other consumers have registered complaints about the business.