The FTC Fights Back

In an effort to educate consumers the FTC (Federal Trade Commission) launched a campaign today debunking the silly and false advertising associated with the television ads for FreeCreditReport.com.  The only website for consumers to legitimately obtain their credit report for free is found at www.annualcreditreport.com.

Does Your Credit Score Matter?

Almost every other day I see those goofy commercials on TV for your free credit report.  You know, the ones where some guy in a pirate hat is singing and playing his guitar.  Quite amusing to say the least but quite misleading on several levels. 

The advertising on TV and radio for “free” credit reports often comes at a price.  They often give you your credit report in exchange for signing you up for a monthly credit monitoring service that you have to pay for.  Not free in the least bit.  Several years ago the Government supported the creation of a site where you can obtain all three of your credit reports (Equifax, Experian, and Transunion) for FREE once a year: www.annualcreditreport.com.  Or, you can call the toll free number to order your reports by mail: 1-877-322-8228.

More important than actually finding the right place to get your credit report is actually determining whether or not you need to in the first place.  The lending industry would love for all American consumers to believe that their financial livelihood hinges solely on knowing what’s on their credit report and what their credit score is.  Constant advertising for services providing this information doesn’t help.  In reality, most lenders are more concerned with your debt-to-income ratio than your actual credit/FICO score.  (FICO is the credit score used by most lenders and is generated by the Fair Isaac company.  See www.myfico.com for more information on how your credit score is actually calculated).

If you have a large amount of revolving unsecured debt (primarily credit cards and personal loans) then you have a problem that far outweighs concern for your credit score.  Your credit score will most likely continue to decline as the years pass even if you are making your minimum payments every month.  The only way to see your credit score improve in this situation is to pay off your debt as fast as you can.  To find out how fast it will take you to pay off your debt use this calculator: http://www.bankrate.com/brm/calc/creditcardpay.asp.  If you find that it will take more than 3 years to pay off your debt find help NOW!  Don’t wait around thinking that you can pay off your debt on your own.

Even if you have obtained lower interest rates from your creditors or managed to get them to accept lower payments it is only a short-term solution.  These types of arrangements typically only last 3 – 12 months and then you’re back in the same boat.

For unsecured accounts such as credit cards the terms of the loans are quite arbitrary.  Your creditor can increase your payment or your interest at just about any point in time.  If they believe that you pose a greater risk and if your creditworthiness decreases they may begin to limit your available credit and increase your APR.  You might have low interest now but ask yourself how long you think that’s going to last.

With so many banks going out of business, merging, or being acquired by other banks, the terms of  your original credit card contract may become void.  Any time your creditor changes you will receive a new contract with potentially very different terms than your previous one.

Don’t get hung up on this notion that your credit score is all important.  If you have a large amount of unsecured debt getting out of debt is far more important.  Focus on this and before you know it you’ll be in a position where you can rebuild financially.

Smear Campaigns: Idiocracy

It never ceases to amaze me how many other debt settlement (DS), consumer credit counseling service (CCCS), and debt management companies like to sling mud at each other.  All of these debt relief options have successfully existed for many years.  I don't think DS and CCCS are going away anytime soon.  In fact, if the economy is any indicator, the debt relief industry is really taking off right now.  That being said why are so many companies high centered on spending money on trying to derail the competition?  There are two reasons for this.

The first reason a company resorts to a smear campaign to try and find clients is simply because they have not been in business for very long.  They really have no depth of knowledge, no experience, and actually have no idea what they are saying when they attempt to attack the competition.

The second reason is that a few bad apples may be giving the wrong impression.  Every industry suffers from a few companies that are poorly managed and possibly unethical.  It is a shame that some resort to bad mouthing an entire industry simply because of their experience with one company.  This just goes to show that due diligence must be done up front when deciding on a company to resolve one's debt.  Two excellent indicators of a company's track record and stability are: the years they have been in business and their Better Business Beaureu (BBB) report. Provanta has been a member in good standing with the local chapter of the BBB since 1994.

There are many debt relief options.  Regardless of what type of program or what company is chosen to help eliminate one's debt, make sure appropriate research is performed.  If you feel rushed through the application process and uncomfortable for any reason, take a moment to step back.  Thoroughly evaluate your options before making a decision.

Lastly, don't work with a company that is spending all their time and effort bad mouthing the competition.  In reality, they probably don't know what they're talking about and will probably be out of business within a couple years.  If they spend all their time telling you why you should not be dealing with their competition, you might wonder why they're not spending it telling you about why you ought to consider working with them. Given two options, A and B, discovering that A is a bad one doesn't nesessarily mean that B is a good one. Option B must still be evaluated independently.

We invite you to evaluate Provanta.

Fighting Fire With Fire

Sometimes, it’s like a battlefield…

In October 2007, Provanta negotiated a settlement on a $12,900 account with a collection agency who was representing the original creditor.  As with all settlements, Provanta required the collection agency to supply a written settlement agreement before any payment to them.  We received the written agreement, sent the settlement payment of $5,600 to the collection agency, and saved our clients a gross amount of $7,300. 

Three weeks later, Provanta received a call from a supervisor at the collection agency.  She informed us that the original creditor recalled the account and as a result they could not proceed with the settlement agreement.  This was completely unacceptable to Provanta, for we had a valid, signed settlement agreement that was in already in place, performed upon, and the payment accepted. 

To make matters worse, the original creditor sent the account to a collection attorney who threatened to sue our clients unless they paid the balance in full.  This was the last straw for Provanta, and we contacted an attorney that we have worked with for many years.  He specializes in consumer law and FDCPA, Fair Debt Collection Practices Act, violations.  He was more than happy to assist our clients. 

It took about 6 months and lot of letters to reach an agreement but we finally did.  In the end, the collection attorney agreed to accept the $5600 original settlement agreement, or deal with a lawsuit against themselves, as well as the original creditor, should they persist.

(Ref. 1506)

Fee Harvesting

During the course of a conversation with a young woman about her debt, she gave me some very interesting information about one account she had with a balance of about $475.  It turns out she opened this account about 4 months ago with a very large and popular credit card company.  She did so in her last attempt to manage her debt on her own and avoid having to enroll in a debt program or filing bankruptcy.  She was hoping that this card, which only had a $500 limit and low interest for the first 6 months, would give her some cushion to pay for increasing food and gas prices while she the juggled the payments on her other 6 accounts.  She admitted to me that this was not a well thought out plan to begin with and I had to agree with her. 

Anyway, she had the card for about a  month and she hadn’t even had a chance to charge anything yet when she received her first statement.  There were 4 charges on the account-an initiation fee of over $100, an annual fee to be in a rewards program for $25, another monthly maitenance fee of $10, and a set up fee of $25.  She had already accumulated over $150 of debt with this company and she not even signed the back of the card yet.  Needless to say her struggles with her budget and debt did not improve.           

This is an example of fee harvesting and it’s something that I’m coming across more and more as I talk to clients about their experiences.  Fee harvesting generally refers to a credit card company’s practice of applying fees to a customer’s account so that the interest drawing balance continues to grow even if the person is no longer actively using the account.  Simply put, it allows a creditor to charge you a fee and then charge you interest on the fee.  Highly profitable for the creditors, and highly dangerous for individuals who do not read the fine print when they sign up for these offers that sound too great to be true.       

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