A lot of Coloradans are using credit- counseling and debt-management services, but only a small number of those people are getting out of debt.
The state’s first report on debt-management activity shows that less than 10 percent of residents working with such companies between 2006 and 2008 have paid off or settled with their creditors.
But they’ve paid a hefty price for the services: an average fee of $495 for credit counseling and $1,666 for debt management.
“Colorado consumers in financial distress may be tempted by numerous advertisements from companies claiming to lower and eliminate debt,” said Colorado Attorney General John Suthers in a statement. “As our data shows, debt settlement and credit counseling are not quick fixes.”
Mike Saccone, Suthers’ communications director, said considering the low case completion rate, it’s a good idea for struggling consumers to contact creditors themselves to try to resolve their debt.
The study collected data from 42 Colorado registered debt-settlement and credit-counseling companies. It showed an average debt of $21,050 owed by consumers contracting credit counselors and $30,788 for those contracting debt-settlement businesses.
Annie Thompson, owner of Prestige Financial Solutions Inc. in Westminster, said creditors only work with consumers after they are past due. So if a consumer wants help before going into default, they may be out of luck.
When consumers approach Thompson for help, her company sets up a third-party account for customers to make monthly payments rather than directly paying creditors.
“They (creditors) have a track record with us,” Thompson said. “They know they will get their money that way.”
Although credit-counseling fees by Colorado law cannot exceed $50 per month or an initial setup fee of $50, consumers could face maximum payments of $2,100 for services in an average 41-month-long contract.
Debt-settlement fees also are limited by the state but are approved to charge up to 18 percent of the total principal amount of the debt.
Where to get more info
To view the 2008 debt-management report, a list of registered credit counselors and debt-settlement providers, consumer information and complaint forms, go to .
