"They said they would deal with the creditors. The creditors would lower the interest rates and in three years my debt would be paid off," Austin says.

All Austin had to do was send a monthly payment to Gibson Trust and they would pay her creditors.

Only they didn't.

"I sent almost $2,500 and nothing went to my creditors. They took all my money," Austin says. "I think they paid about $40 to Wal-Mart and that's about it."

Gibson Trust has been charged with violations of the state's Deceptive and Unfair Trade Practices Act by the Florida Attorney General.

Representatives of Gibson could not be reached for comment.

Austin's credit rating took a beating. By November, creditors were calling and demanding four months of missed payments.

The mother of two, who had never missed a payment before, now has black marks all over her credit. And because several of those unpaid accounts were joint accounts, her husband's credit is marred as well.

Their credit score, which once topped 800, has fallen below 500.

"It's hard. Sometimes when I think about what happened I just want to cry," Austin says.

"We tried to do this program to have a better life and now it's worse."

More and more Americans are walking away from debt-counseling companies unsatisfied. Some, like Marilou Austin, leave with deeper financial wounds than when they started.

Grievances on the rise
Complaints against credit-counseling agencies and credit-management companies have skyrocketed in the past three years.

In 2000, complaints against credit counseling and management agencies totaled 404 and complaints against debt-consolidation companies reached 653, according to the Council of Better Business Bureaus.

In 2002, in e-mail traffic alone, 1,055 consumers lodged complaints against counseling agencies and another 1,819 consumers complained about debt-consolidation companies for a total of 2,874 complaints. This does not include written and phoned-in complaints made that year.

"It's burgeoning," says Holly Cherico, a spokeswoman for the Council of Better Business Bureaus in Arlington, Va.

In 2004, the mounting complaints reached the ears of state and federal officials. The Massachusetts Attorney General's office sued Cambridge Credit Counseling Corp., alleging that the "agency funneled millions of dollars to insiders and misled consumers into paying high fees." It also reached a $650,000 settlement with a Florida-based telemarketer, Integrated Credit Solutions, Inc., of Fargo, Fla., which officials accused of misleading consumers into buying high-cost credit counseling services.

At the federal level, House and Senate committees held hearings into the profitable nature of some in the nonprofit credit counseling industry. The Senate's Committee on Governmental Affairs titled its scathing report, "Profiteering in a Nonprofit Industry: Abusive Practices in Credit Counseling." Two federal agencies took aim at one of the largest national independent credit counseling companies, AmeriDebt Inc. The Federal Trade commission sued the Germantown, Md.,- based firm, accusing it of deceptive practices. In September, the IRS got into the act, according to the Washington Post, which reported (registration required) that the tax agency had hit the company with a claim of $15 million. It is one of 50 companies whose tax-exempt status is being reviewed.

What's the fuss about? High fees and the questionable handling of debt-management plans.

Most debt-counseling agencies are nonprofits that get much of their financial support from the credit card industry. They offer an array of services, including debt-management plans.

When you enroll in a debt-management program, you write a monthly check to the credit-counseling agency and the agency pays your creditors. In a typical debt-management program, a card issuer will charge lower interest rates, stop charging late fees and contribute money to the debt-counseling agency.

A debt-management plan usually lasts three to four years. The consumer generally gets reduced interest rates, lower monthly payments, no more late fees and fewer calls and letters from bill collectors. Debt-counseling agencies get their operating money by receiving a percentage of each client's payments back from creditors.

But some debt-management programs aren't on the up and up. Some agencies charge upfront fees as high as 3 percent of a consumer's total debt.

Other agencies pocket the first month of credit payments for themselves. So right off the bat, you're a month behind. The result? Your credit accounts get slammed with late fees and penalty interest rates.

"Instead of you being current, you're a month behind," says Maxine Sweet, vice president of consumer affairs for Experian.

"A lot of consumers are getting surprised by that. If it's in the fine print, they're not reading it."

To stay current, you would have to pay your monthly credit bills on your own on top of the agency's hefty, upfront fee. That means two months' worth of creditor payments in a single month.

"That's very difficult for someone in debt and struggling to do," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA). "We consider that to be a very unscrupulous practice."

And how's this for an unscrupulous practice -- some agencies fail to make payments to their clients' creditors on time or at all, resulting in more late fees and penalties for consumers.

There are reputable agencies
Now there are plenty of reputable credit-counseling agencies that assist people with all kinds of money problems. They also charge low fees for debt-management programs and other services.

They include members of the AICCCA and the National Foundation of Credit Counseling, the oldest network of nonprofit counseling agencies.

The AICCCA caps enrollment fees for debt-management plans at $75. Monthly service fees are capped at $50. Many member agencies charge fees well below these caps.

Members of the NFCC, whose agencies are mostly known as Consumer Credit Counseling Services, charge an average enrollment fee of $19 and an average monthly service fee of $12 to clients that enroll in debt-management plans.

So it is possible to find a cost-effective, debt-management program. But it's also important to realize that a debt-management plan is not the best strategy for everyone with debt woes.

At the NFCC only about one-third of all clients qualify for a debt-management plan. Only about one-quarter of clients of AICCCA enter plans.

Some over-the-phone counseling companies try to push everyone that calls into a debt-management plan.

"They're not doing counseling. They're doing enrolling," says Eric Friedman, an investigative administrator with Montgomery County Consumer Affairs in Maryland. "They're collection services turned upside down."

And collecting your money is their primary goal.

"The first thing they want is authorization to take money out of your checking account from day one," says Carol Wagner, a certified credit counselor with Consumer Credit Counseling Service of the East Bay.

Don't be persuaded.

"Firms that simply shove you into a debt-management plan because that's how they make their money are doing you a disservice if not outright ripping you off," Plunkett says.

Wagner, who worked as a credit counselor for 11 years, has helped many clients recover after bad experiences with shoddy or inappropriate debt-management plans.

"Something has fallen apart because the plan should have never gone through in the first place," Wagner says.

Some people simply can't afford a debt-management plan. Between the high fees and the monthly payments, they have nothing left to live on. Wagner has seen instances where half of a client's Social Security check was eaten up by an ill-advised debt-management plan.

"These people come in: 'How can I get my utilities turned back on?'" Wagner says.

For other people, cash flow isn't a problem. Getting a handle on their debt is. Wagner recalls one client who had $2,000 left over each month after he paid his monthly bills and other living expenses. But he signed up for a debt-management plan anyway.

It made things worse. The company he chose didn't pay his credit bills on time and he was getting slammed with late charges from all his creditors.

Some nonprofits charge high fees
If you think you'll steer clear of this kind of trouble by choosing a nonprofit counseling agency, think again. Some nonprofits charge high fees and others are run by people looking to line their own pockets.

Investigations have uncovered big salaries for nonprofit executives as well as some rather dubious relationships between nonprofit counseling agencies and for-profit businesses, including payment-processing companies.

In a few cases, the same person ran the counseling agency and the for-profit business. In other instances, a nonprofit agency's executive was steering business to a for-profit company run by a relative or crony.

So regardless of what all those warm and fuzzy ads might say, not every nonprofit counseling agency has your best interest at heart.

"Consumers immediately let their guard down and think they're all good guys, and they could be funneling money to a related, profit-making company," Friedman says.

Wondering why there isn't a law to keep debt-counseling companies in check? There is, at the state level anyway.

About half of the 50 states have some kind of licensing requirements for debt-management companies. But most of these states exclude nonprofit agencies from these requirements.

"The laws for the most part are very general and often make the assumption that if it's a nonprofit it's OK," says Deanne Loonin, staff attorney at the National Consumer Law Center in Boston.

And since there's no federal oversight of counseling agencies, it's very much consumer beware when it comes to selecting credit management help.

"Research nonprofits as you would any other business," says Marta Moakley, assistant attorney in the Florida Attorney General's Office.

"There's no guarantee that their business practices are legitimate."

For help in selecting a credit counseling agency or debt-management company, check out tips on Bankrate.com.

Remember your credit record is your responsibility.

"It's ultimately their credit history that's at stake here," Moakley says. "They need to take any problems very seriously."

-- Updated: Sept. 21, 2004