Debt Management: Take Counsel With Caution

With credit-card debt at record levels, the number of consumer credit-counseling agencies has mushroomed–and so have deceptive practices, say two advocacy groups, the Consumer Federation of America and the National Consumer Law Center.

Credit counselors offer services from budget advice to hands-on bill management. Signs that you may benefit from such help can be obvious–you’re behind on payments–or more subtle–you spend more than a quarter of your after-tax income on nonhome, noncar debt. There’s no quick way to check an agency because the industry is largely unregulated. But here are some pointers:

–Fees are rising nationally. Insist on finding out about all fees (and which are voluntary) up front. Most agencies are nonprofit; this doesn’t ensure quality.

–Beware agencies that don’t explore at length what you earn, spend and owe before offering a “debt-management plan.” Under such a plan, you’d send the agency one monthly payment to be disbursed among creditors, usually in exchange for lower interest rates. A plan should cover all unsecured debt (including things like debts to tradespeople and doctors’ bills). Find out what interest-rate breaks you’ll get and how long it will take to pay off all your debt.

–Some states require registration of one kind or another; ask your consumer-affairs office. –By Barbara Kiviat