Credit/Debt Recovery

Great news from IL

Lisa Madigan, Illinois' Attorney General, has filed a lawsuit against Arrow Financial Services.

Arrow is a junk debt buyer, and they're notorious for employing underhanded and agressive collection practices to collect debts that are not legally due.

A commenter here asked a few days ago how to get the collection letters to stop when you've already told them you don't owe the debt and they keep contacting you anyway. An answer I didn't give (but should have) is "complain to your State Attorney General."

For a state AG, here's no downside to going after bottom-feeders like Arrow Financial Services. If you've got a junk debt buyer on your case, visit your state gov't web site and find out how to file a complaint. Hopefully, Lisa Madigan will be the first of many Attorneys General to take on this festering slime pit of junk debt buyers.

DebtTools.com offers education about debt settlements

A link to Debtools.com showed up in the comments here yesterday, and I took a look at it. It's really impressive, and I'd recommend checking it out if you're serious about getting a debt settlement.

It's not a debt settlement service, but rather an education program that can teach you how to negotiate settlements on your own behalf. I think you'd better have at least $2,500 in debts before you consider going the settlement route. (Some companies will only talk settlement if your debts are even greater than that.) Debtools.com has a "free financial check up" feature that might help you figure out if a settlement is right for you.

What's missing on the site, from what I can see, is a straightforward discussion of the disadvantages of debt settlement. They compare settlements to credit counseling, bankruptcy, and debt consolidation, each time comparing settlements favorably. But settlements aren't always the best idea. Depending on your individual situation, you may really need bankruptcy or credit counseling. And yes, there are a lot of times when settlements are the best option. They certainly save you a lot of money.

The main thing to consider is the impact a settlement will have on your credit rating. It won't be as bad as bankruptcy, but will be worse than credit counseling. Given the amount of money one usually saves, many debtors are happy to take a hit to their credit rating for a few years and opt for a settlement. But you should be fully aware of it before making a decision.

I'm by no means suggesting one debt relief method over another; it's useless to talk in generalities when everyone's situation is unique. If you're looking to knock out your debts, do some homework and consider all of the options; debtools.com is a good place to do your homework on settlements.

More on "Good Debt"

Bizzyblog links to this story from Smartmoney.com that has more on the good side of being in debt.

I don't have time to really get into it today, but you truly are a second-class citizen in this society if you don't have a credit card.

None of this, of course, negates the fact that certain debts -Refund Anticipation Loans and most credit cards- are BAD DEBTS and should be avoided. I increasingly think a lot of student loans belong in that category too, but mainly I'm saying you should have a credit card but not carry balances from month to month if you can avoid it. And I'm a big believer in homeownership, so if you're renting, give some thought to home loans (take a First-Time Homebuyer Class grom a HUD-approved housing counselor) and try to become a homeowner. Everyone agrees that a mortgage is good debt.

Good MarketWatch article on credit counseling

I found this article from Marketwatch in my email (thanks, Tom); it's a few days old, and it may be registration only by now.

The article, "A safer credit counseling world?" discusses the FTC's announcement this week that they are filing a complaint against Express Consolidation, which appears to be a DMP mill in the Ameridebt mold.

What can I say? This is the system working as it should. These guys are crooks, and they got caught. The MarketWatch columnist seems to understand this; the subtitle of the story is "Another 'debt manager' faces fire, but overall outlook improves for consumers." Things are improving. 40 agencies lost their non-profit status last year, BAPCPA has created a new approval process for agencies that want to provide bankruptcy counseling, and the FTC isn't slacking when it comes to catching new crooks.

All that is just fine. It's a good article, fair and balanced. But MarketWatch's daily e-mail hyped the story thusly:

Kicking a person who is down isn't considered fair fighting. Fleecing a
person who is down financially seems more than unfair; it seems
downright despicable. Yet there are dozens of companies who pull the
wool over desperate consumers' eyes, all in the guise of helping them
get out of debt.

Dozens! (Out of around 1,000 agencies nationwide.)

The Federal Trade Commission and the IRS have been on to these bogus
"credit-counseling" operations for a while, and have done some cleaning
up. But consumers seeking legitimate aid with overwhelming debts still
face a difficult time finding a genuine nonprofit agency that can
actually help.

Really? It's difficult to find a genuine nonprofit agency?

The scammers are good. They promise debt relief, but then funnel
unsuspecting consumers to "debt-management" plans -- the biggest
beneficiaries of which often being for-profit affiliates of the
so-called counseling firm. The idea can sound good to people in trouble
with creditors, until they see their first "consolidation" payment
disappear into the coffers of their alleged benefactors.

There's nothing phony about a "Debt Management Plan" when it's used properly by a consumer who truly needs it. The problem with DMP mills like Ameridebt is that they shoe-horn every client they see into a DMP. Legit credit counselors never did this: historically, they recommended DMPs for around 30% of the clients they counseled. Now, the same agency can provide bankruptcy counseling to a significant portion of the other 70%. And as I've discussed at length on this blog, credit counselors who are approved to provide BK counseling are NOT pushing bankruptcy clients into DMPs. The last time I saw the numbers, it was fewer than 2% of BK clients who were found to be good candidates for DMPs. So this is not an industry rife with "scammers."

Read her Consumer Watch column for tips on how to distinguish
the real counselors from the fake ones.

Let's look at these:
BBB membership. I've always said to stick with credit counselors who are members in good standing with the BBB.
Be wary of any outfit that charges up-front fees. There are a few reputable agencies who might charge something like a $20 counseling fee, but I would recommend shopping around until you can find free counseling.
Be ware of any who steers you immediately toward a debt management plan without taking a lot of time to understand your financial situation. Sounds good.
Get details on how the counselors are trained. This is about the only thing the NFCC is good for anymore. Third-party certification is a must.
Approval by U.S. Trustees. The article also suggests that being approved by the DOJ to provide bankruptcy counseling is a good sign. I happen to agree strongly, but most approved agencies run a disclaimer saying that "approval does not constitute an endorsement of services" or some such. Still, approval does mean something, and no Ameridebt clone is going to make it through that approval process.
All this is really covered (and more) by COA accreditation. If the counseling agency passes COA accreditation, they're almost certainly on the level.

Oh, and while I'm discussing this, I'll let you in on a secret: The toughest approval to get in the industry is HUD certification. If an agency is certified by HUD to provide housing counseling, they really endured some rigorous examination, including audits. Not every agency does housing counseling, but for those that do, HUD certification is a hard-won badge of distinction.

Money Podcast and Good vs. Bad Debt

Sorry I'm already breaking my promise to post more often... I've just been swamped with work here. I wanted to point everyone to the excellent "Money Girl's Quick and Dirty Tips for a Richer Life" podcast. It's part of the podcast network at QDnow.com.

I really do like the podcast, and I'm recommending it highly, but of course I have to take issue with a minor point in the first podcast, "Good Debt vs. Bad Debt."

Her main point is excellent, and mirrors what I wrote in my book. The idea is that debt insn't necessarily bad: debts for things that gain value, like a mortgage, are good debt. Debts for things that lose value, like credit card debt, are bad. However, I'm growing colder to a couple of the memes at work here. Money Girl includes student loan debt as "good" debt, and auto loan debt as "bad." Why? Student loans help you get through college, which helps you earn more money, so they essentially create more value for you. Auto loans are "bad" because cars depreciate in value faster than anything else.

I've been published saying essentially the same thing, but I'm less certain these days. A car gets you to your job just as surely (and way more immediately) than a college degree. I know a brand new, expensive car is a terrible investment because it loses so much value the second you drive it home, but a modestly priced, reliable car is essential to being a good, dependable employee. Why is borrowing to pay for it such a bad idea?

And as for college, well, I'm less and less sure it's worth the cost. I find myself agreeing more and more with this post and this show. College is overrated. Yeah, I'm not going to win too many fans saying that, but I know way too many people who are DEEP in student loan debt that they'll be paying down for a long time. They all fell for a big lie, and that is the notion that a great job is waiting for you as soon as you get that degree. "Just go to college," we were told, "and everything will work out." I even had a professor who said to borrow whatever it takes to go to the best school possible. What subject did he teach? Theatre. Trust me, there's no pot of gold at the end of that rainbow.

As far as I'm concerned, it's never too early to think of your financial future. And that means before you borrow $50,000 to get that degree in writing poetry.

More Resolution Advice

Yesterday I blogged about New Year's resolutions. One of mine was to offer more content to directly benefit consumers. In that spirit, check out this press release from my friends at Springboard. It's got 7 suggested resolutions to help consumers achieve financial freedom.

Happy New Year

2007 is here, and it's time for most of us to make resolutions we'll break by February.

Or perhaps not. Last year, I kept my resolution all the way to the end of the year... I resolved not to argue with anyone about taxes, and I didn't during 2006. That may be the first time I kept a resolution throughout a year. (Well, I've had resolutions in the past that I kept trying to achieve all year, but didn't quite make it.)

So what about this year? For the blog, I'm going to resolve to post more frequently. My goal will be at least 150 posts on the year. I'll also try to post at least half of the time on things that will help individual debtors restore their credit and eliminate their debts. (The other half will continue to be news on the credit and debt recovery industry.)

I'll have a couple of personal resolutions I'm making too; and they aren't on this list. If you're making resolution #7, check back here once in a while; I'll do what I can to make it a little bit easier for you.