At first glance, the idea behind credit counseling is a good one. A consumer who is struggling with debt can work with a credit counselor to renegotiate their bills, often times reducing the amount of money they owe. Counselors can also setup affordable payment plans for consumers, making it easier to pay back the money owed. Creditors often agree to work with these credit counseling companies because they recognize the value these services provide. While banks and merchants dislike negotiating their debts with a consumer credit counselor, it’s better than not being paid at all.

Unfortunately, consumer credit counseling isn’t about consumers – it’s about profits. Most consumer credit counselors aren’t interested in helping out normal people – the focus is on making money. The whole process has turned into one big scam, where credit “counselors” are often more interested in profiting from a consumer’s debt rather than helping them. In fact, quite a few of these programs are operated by the lenders themselves (and therefore they aren’t very helpful). Not to mention the fact that after you complete one of these so called “credit counseling programs,” most lenders will not touch you with a ten foot pole.

Lenders aren’t interested in granting loans to people that have worked with credit counselors, and for good reason. When you work with one of these “credit counseling services”, you’ve allowed someone else to tell you how much you should repay your creditors without trying to work out a settlement plan with your creditors directly. Credit counselors profit on the difference between what you pay them and what they can get your debtors to accept. For example: You owe Visa $500, but your credit counselor says they can get Visa to settle for $300. The counselor then gets Visa to settle for less than you agreed to pay – let’s say $250. The credit counseling company then pockets the difference without your knowledge.

The net result of credit counseling is that your credit is still damaged, your creditors aren’t happy with the money they’ve received, and only the credit counselors have made money.

If you are faced with a tough situation and you’re considering credit counseling, take a few moments to learn about credit collection laws. Most people never take time to find out what they can do to stop the phone calls and letters, and that can drive people to make a bad decision (like joining a credit counseling program). After you learn about your rights, contact your creditors by mail (return receipt requested) and let them know what the situation is. Explain to them how you are planning on paying them back. Ask them for their help. Don’t threaten your creditors with bankruptcy – just tell them you want to repay the debt as fast as possible. Ask them for help with interest rates, late fees, and reducing the total. Ask them what types of payment plans they offer for people who have fallen on hard times. Also, if you’ve fallen on hard times due to a medical illness or a natural disaster. let your debtors know and offer to send them proof. You may find that your creditors are more accommodating than you might think.

Skip the credit counseling agency or debt repayment plan and work out a deal with your creditors on your own. Don’t let the middle man profit from your misfortune.

Listen to this article:

1. They want you to prove that you’re committed. By making a big down payment of a few thousand dollars, you demonstrate that you’re invested in the loan. Banks have found that when people make a big down payment they’re much less likely to default. A bank will want you to prove your commitment if you’ve had any credit issues in the past or if you’re a first-time borrower without an established credit history.

2. They want to reduce their risk. When a borrower defaults on an auto loan, it’s usually a pretty big loss for the lender. If your credit history makes the bank think that you might default, they’re going to ask for a down-payment (assuming they approve the loan in the first place). But if your credit history is clean, theres no reason to worry about you defaulting and you don’t need a down payment.

If you have bad credit or no credit, the banks will look for 10 percent down as a minimum. Most times they want substantially more than that – 20 or even 30 percent down. Keep in mind that if you’re a first time buyer, there are some programs for new vehicles – two examples are Ford and Toyota – where you can put little or no money down. As long as you meet their requirements, you’ll get a new vehicle with as little down as possible.

The answer to the second question, “How much should I put down,” is “as little as possible!” Cars are depreciating assets. If you can do anything else with your down payment to help you financially, by all means do it. If instead of putting your money down on a car, you can use your cash to buy a house or pay off a high-interest debt (such as your credit cards), you should do those things. You should also have an emergency cash fund so that if you get sick or laid off, you have enough cash to make your payments. There are usually better ways to spend money than using it for a car loan down payment.

There is one exception to this rule of putting as little money down as possible: if you can lower your car loan interest rate by putting a little money down, do so. If the difference between getting 5.99% and 7.99% is you putting some extra cash down, you’d be smart to do so. Sometimes just an extra $500 or $1000 down can get you a better interest rate. Getting a lower interest rate will save you a lot of money on finance charges in the long run.

So, do you need to make a down payment in order to buy a car? Only if your credit requires it.

How much money should you put down? As little as possible.

As always, take your time when buying a new or used car. Do your car research, get multiple car financing quotes, and feel free to contact us with your questions.

First, if the collection is for a small amount of money, consider paying it (even if you don’t owe). Sometimes it’s easier and smarter in the long run to pay a collection and move on. While you can dispute collections, it’s time consuming and it doesn’t always work.

However, if you want to dispute the collection, here’s a step by step guide:

1. Put a date on every piece of correspondence and make a copy of everything. You’ll need copious records if you’re going to win.

2. Within 10 business days of receiving the notice, send a letter to the collection agency indicating you wish to dispute. If you don’t get this letter out in time you’re not going to be able to dispute the collection and you’re admitting you owe the debt. Keep in mind that you MUST SEND A LETTER – a phone call does you no good here because you need proof you contacted them. You might even send the letter certified mail so you have proof it was received.

3. Once you dispute the collection, the creditor is required to prove you owe them money. Believe it or not, collection agencies will often drop the matter right here. For a lot of creditors, it’s too hard to provide proof (this is especially true of medical collections). They have to dig through records, find your signature, etc. This is the biggest credit repair tip I’ve got!!

4. If the creditor provides proof that you owe, make sure you haven’t already paid. Sometimes collections are pursued in error. Again, this is often the case with medical collections.

5. Negotiate the amount of the collection that you’ll pay. If you can’t find proof that the debt was paid, call and speak to the collection agency and explain to them that you believe you’ve already paid this bill. However, since you have no proof, offer to pay a portion of the bill to settle the dispute. Typically you can settle a collection for half of the amount owed. If the collection is large (in excess of $1,000) you may even be able to settle for less than half. This negotiation can take time and a few phone calls, but it’s worth it. Speak to the manager if you don’t like the answers you’re getting. At the end of each conversation make sure you record the day and time as well as the name of the person you spoke to and their direct number.

6. Send a letter summarizing your negotiation to the collection agency and ask them to re-bill you for the negotiated amount. Don’t pay the collection agency one dollar until they’ve sent you a new bill for a lower amount (otherwise, they may apply the lesser amount to the full balance and then bill you for the rest). Make sure the bill shows that the lower amount, when paid, will satisfy the debt. Keep every record so that if they come back asking for more money later you have proof they were paid.

If you have collections that you didn’t dispute immediately…

If you have any collections that are showing on your credit report, your first step is to dispute them with the credit bureau. Go to each credit bureau’s website (links below) and dispute every collection. Remember, when you dispute a collection the creditor is required to provide proof of the debt. Depending on the age of the collection, the creditor may not be able to provide proof and the collection will be dropped. If the creditor does provide proof they will also provide contact information to help settle the debt. You can then follow the steps above.

Disputing collections online is the easiest method of dispute and it’s recommended by all three credit bureaus.

Some people reading this may be tempted to dispute every debt — after all, if creditors typically settle for less than full balance (assuming they can even provide proof) why would anyone pay their creditors in full? Remember that even if the collection is settled and your credit bureau is never affected the creditor will not extend you credit again. Don’t dispute a debt from a creditor you want to have a relationship with in the future (like your personal bank, for instance).

Credit Bureau Collection Dispute Links:

Experian Disupte

Equifax Dispute

TransUnion Dispute