Resolve to lighten your debt balances

Your New Year’s resolution is to tackle your debt and become plastic-free. Okay! This is a good time of the year to be optimistic.

So where should you start?

If you’re not feeling overwhelmed by all the money you owe and just need a few suggestions about where to begin, there are easy budgeting and pay-down-your-debt calculators online that can offer quick advice — and put everything in perspective.

These calculators usually ask you to input all your debts, your balances, your income and expenses — and then they suggest a plan of attack. Even if you don’t follow all the suggestions, it isn’t a bad idea to lay it all out and mull it over. After all, these calculators are free.

If you think that you really need one-on-one counseling, look for a debt management agency, commonly known as a “credit counseling agency” — preferably one that is a nonprofit agency.

Credit counseling agencies sit down with you (either in person, on the phone or even online) and go through your income and expenses. They review your debts and, if it is feasible, come up with a payment plan for you.

In general, under the plan, you send the agency a monthly amount and they in turn send the payments to your creditors. For setting up the plan and administrating the distribution of the payments, there are fees.

The fees in Maryland are limited by the Maryland Debt Management Services Act (found at Md. Code Ann, FI Art., 12-901 et seq.) and cannot exceed more than $50 for the setup fee and $8 per month per creditor listed, up to a maximum of $40 a month for maintenance fees.

The benefits of working with a credit counseling agency are many. Not only do you work through the problem, but if you stick with it, you will avoid collection actions such as letters, phone calls and court action while steadily improving your credit and your credit score.

Also, credit counseling agencies are often able to stop creditors from charging interest — and that allows your balances to actually decrease as you make payments.

Where do you find a legitimate credit counseling agency? I have a few suggestions:

• Shop around and pick one that will suit your needs.

• Make sure the one you choose is licensed by the state licensing agency. In Maryland, check with the Department of Labor, Licensing and Regulation.

• Just because a credit counseling agency says it is a nonprofit does not mean it is looking out for your best interest. So ask questions about how they work and what they will do for the fees you will pay.

• Try the Web site of your local bankruptcy court.

Why the bankruptcy court? Even if bankruptcy isn’t in your mind, under the changes to the bankruptcy reform act anyone filing a consumer bankruptcy, who is not under a disability must undergo credit counseling from an agency that is approved by the Office of the United States Trustee.

The U.S. Trustee’s Office set up guidelines that any credit counseling agency that wanted approval had to meet — and those guidelines are good ones. Check out this link for some approved credit counseling agencies: http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm
 
Debtor beware of credit repair

A word of caution! Don’t confuse a debt management service or credit counseling agency with a debt settlement agency — also known as a “credit repair” company.

For the most part, these are for-profit businesses and they make their profit from people with debt problems. These companies do not make monthly payments to creditors. Instead; they negotiate with your creditors to pay them a reduced amount of the balance due.

If the creditor is not willing to negotiate, the debt remains and collection action will begin if you are unable to pay. Where consumers run into trouble with a debt management service is not understanding that the creditor actually has to agree to take a lesser amount.

Further, in cases of dishonest credit repair companies, I have seen a company require huge upfront sums of money from the customer before performing any work. Or, companies take huge fees and do nothing but issue a slick brochure that tells you what you already know — you owe money to certain creditors.

My advice: Stay away from any company that contacts you and requires a large set-up fee. None of these credit repair companies should be taking any money from you until they have performed the services promised to you in writing.

To do otherwise in Maryland violates the Maryland Credit Services Businesses Act (Md. Code Annotated Commercial Law Art. 14-1902 (6)), and federal law as well.

This column is for general informational purposes only. If you need help, call your local bar association for a referral. Low-income people may qualify for free legal help in some civil cases from Maryland Legal Aid. http://www.mdlab.org/

Louise M. Carwell is a senior attorney with Maryland Legal Aid http://www.mdlab.org/ in Baltimore, where she has practiced consumer law for more than 20 years. Carwell, a graduate of the Case Western Reserve University School of Law in Cleveland, Ohio, specializes in credit, foreclosure prevention, consumer protection, and bankruptcy. She regularly trains lawyers and paralegals at Legal Aid and speaks to community groups and judges on consumer issues. In addition, Carwell teaches at the University of Baltimore School of Law and the University of Maryland University College.

Are you a credit-wise consumer with a question? Send it to Louise Carwell, c/o Exhibit A, wayne.countryman@exhibitAnews.com