Bills.com Warns Against Unreliable Debt Relief Companies
Seven basic questions can help those in severe debt screen possible debt relief providers.
SAN MATEO, CALIF. — Nov. 8, 2010 —Americans continue to be buried in debt, with total revolving debt in the country equaling almost $8,200 for every single person in the United States . While the ideal medicine for solving this debt malaise is to build a strict household budget and enforce financial self-discipline, reduced income and unemployment have left some Americans with no alternative but to explore help through the services of a debt relief provider.
For those individuals, consumer money resource Bills.com preaches caution and provides steps to help weed out the worst providers and protect consumers from shady debt practices.
"It is critical that those who are most vulnerable and most in danger of financial distress, best understand how to protect themselves from bad actors in the debt relief industry," said Brad Stroh, founder and CEO of Bills.com. "Fortunately, new Federal regulations have provided an easy way for a potential customer to gain confidence and insight into the credibility of a debt relief provider with just a few basic questions."
Recent changes in federal regulations have forced debt relief companies to more responsibly market and bill for their services. However, consumers should still be wary because many of these same companies have yet to fully comply or are simply adopting new terminology to disguise old practices.
If you find yourself in severe debt and have made the decision to enlist the help of a debt relief company, the first step is to do your homework. There are good companies out there, but you must be diligent to find them and to avoid any missteps or mistakes. Read through the company’s Web site, search on customer reviews of the company, and ask friends or family members that may have experience working with similar services. All of this will provide valuable context.
Along with this important information, consumer money resource Bills.com suggests seven basic questions anyone considering a debt relief company should ask their provider before signing an agreement.
- How many customers have successfully solved their debt problems through the program? Understanding a company’s history — how long they’ve been in business, how many customers they have served, and how successfully — goes a long way towards understanding their approach and stability. These statistics should be made available upon request.
- Does the company provide a free debt consultation and financial evaluation? A reputable debt relief company will first provide potential customers with free debt-related educational material and a free personalized consultation to understand their financial situation and debt relief alternatives. If you do not receive these offers or are immediately recommended to subscribe to a debt management plan or settlement plan, be wary.
- What types of debt relief services are provided? It is a red flag if a provider offers only one type of debt relief solution. You should find a company that offers multiple programs so you can be matched with the one that best fits your individual needs.
- Are there any up-front fees required? Ask for explicit instructions on how to engage with the provider so there are no fees disguised as subscriptions or similar smoke and mirror type of charges. New regulations prohibit debt relief providers from charging any fees before a debt is successfully reduced or until new payment terms are set up and initiated. It is also important to understand how companies structure their fees. Minimal monthly fees sound reasonable, but when an average program can run 36 to 60 months these moderate fees can add up quickly.
- How is the provider compensated? Find out whether the company receives any type of compensation from the creditors themselves. This is a frequently the case with credit counseling companies, where they earn what is called "fair-share" and can lead to a conflict of interest. Ideally, a firm should be compensated based on the amount of your debt they help resolve so that their interests are aligned with your own.
- Will the same team that assesses my financial situation manage my account through to resolution? Be careful of companies that transfer your account to outside contractors or third party providers as they will have a limited understanding of your situation and specific needs. The debt relief industry is populated with simple sales organizations that broker consumers to other actual providers of the debt relief service for a hefty fee. Try to work with a company that can handle your case from the beginning through to the elimination of debt.
- What happens if my creditors sue me? Ask whether the provider will assist you in dealing with creditor calls or debt collectors. Many debt relief companies will simply drop a client in this situation, so be explicit in your questions and find a company that will work with you throughout the process regardless of creditor pressure.
Debt relief companies generally fall into three basic categories: credit counseling, debt settlement, and bankruptcy. Each has its own advantages and disadvantages. In general, credit counseling, debt settlement, and bankruptcy are considered most appropriate for escalating levels of debt, in that order.
For more information on each type of service, please review the Bills.com Debt Relief Guide. Consumers can also ask a direct question of a Bills.com financial expert and receive a free, personalized answer by visiting Ask Bill.
 Federal Reserve Consumer Credit release, June 7, 2010, http://www.federalreserve.gov/releases/g19/Current/