The Dirty Dozen: Credit Counseling Agencies Get A Bad Rep

The IRS issued its annual "Dirty Dozen" list, itemizing the most notorious tax scams that promise to reduce or eliminate taxes. Among one of the common schemes listed was credit counseling agencies. Debt-Free America, a non-profit credit counseling agency, sets the record straight and comment on the reputable agencies out there.

San Diego, CA (PRWEB) February 11, 2006 -- On February 7, only two days ago, the Internal Revenue Service (IRS) issued the 2006 “Dirty Dozen”, it’s latest annual list of some of the most notorious tax scams and an alert to watch out for schemes that promise to reduce or eliminate taxes. Among one of the common schemes listed was credit counseling agencies.

The press release stated, “Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt.” As a result of an unregulated industry, many bad credit counseling agencies have cropped up, but that doesn’t mean all of the agencies are bad. Many agencies actually want to help and provide free services to individuals. If you are considering credit counseling and debt management help, it is important (as in anything you do) to do your research to be sure you are working with an ethical and reputable company. Debt-Free America discusses common things to watch for and answers to commonly asked questions below:

Watch Out For False Claims

Technically, credit counseling agencies cannot fix credit ratings. What they can do is help you make consistent payments and work toward paying off your debts, which in turn will help your credit rating improve over time. Consistent payments and debt-to-income ratio, combined, make up 65% of your credit score. The other 35% is made up of length of credit history, type of credit in use and amount of new credit on the record.

Credit Counselors Cannot Help You With Tax Debts

While the IRS and most state governments will accept monthly payments from your credit counseling agency, they cannot assist you in eliminating your taxes or obtaining any sort of waiver. Your taxes are due according to the terms set by the IRS.

How To Find A Reputable Credit Counseling Agency

There are several things you can do to ensure the agency you are considering is reputable and ethical.

- Comparison shop: Find out exactly what fees you will be charged, including any upfront fee and any monthly maintenance fees. Also, find out if there are fees if you want to leave the plan early.

- Documentation: Ensure that the agency is registered as a nonprofit credit counseling agency in the state of California. Ask them to provide you with information to prove that they are. You can also contact California’s Commission of Corporations directly and ask if the agency is registered under the Check Sellers, Bill Payers and Proraters Law. They can be reached at www.corp.ca.gov.

- Surf the web: Review the company’s website, and ask them to describe exactly what services you will receive from them before you pay any fees or give them any personal information. The list should include education or educational materials of some sort, and debt management plans should be secondary.

- Fees: Avoid companies that charge large set up and monthly maintenance fees. Anything higher than $25 for a monthly fee is too high. Fees should be secondary, and in fact, many will waive the fee depending on your financial situation.

- BBB: Check with the Better Business Bureau. Keep in mind that the BBB no longer allows the credit counseling industry to become members of the BBB because of all the bad seeds, and therefore membership should not be a factor. If the BBB report indicates the agency always resolves complaints, which they should do whether members or not, this is a good indicator the agency is ethical and willing to work with unhappy clients. Keep in mind that the credit card industry has the highest amount of BBB complaints nationwide.

- Certification: Ensure the agency’s counselors are certified through the National Institute of Financial Education or the Council on Accreditation. This will mean the counselor you are talking to is certified on the subject of credit and debt, and will be able to provide you with the best help.

- False promises of lower rates: If you’re already with an agency, and shopping around for lower fees or better customer service, avoid agencies that claim they can lower your interest rates even further than your current agency. This simply isn’t true, and tells you the agency is unethical because they are lying. Your creditors decide what interest rate and other benefits you will receive, what they give you through one agency will be the same through another.

For more information about credit counseling and a few other items on the IRS's "Dirty Dozen" list, and to get the facts about Debt-Free America's services, please visit www.debtfreeamerica.com or call toll-free at 1-888-268-2626. Financial advisors at Debt-Free America are available to discuss your budget and expenses with you, at no cost. They have had years of training and education in the budgeting and credit card industry and are available to use as a great, free resource.

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