Many people are living paycheck to paycheck and are worried about overdue bills and debt collectors. Not knowing how to develop a good budget leads some to consider using a credit counselor. Consumer credit counseling agencies are nonprofits that will help you find a workable solution to financial problems. However, some nonprofit credit agencies charge excessive fees that are not applied to debt reduction. Be careful and know what to look for to find legitimate credit counseling services that will reduce, not add to, your debt.
What to Expect From a Consumer Credit Counseling Agency
Reputable agencies provide money management advice, help you prepare a budget and offer free educational workshops and resources. Good counselors are certified and provide money and debt management specialists for you to use. The initial counseling session can last at least an hour with follow-up sessions scheduled if necessary. The counselor discusses your financial situation and develops a personalized plan. Depending on the amount of your debt the counselor might recommend a debt management plan where you make monthly payments to the agency and they pay your creditors. The counselor will negotiate late fees, lower interest rates, and term extensions with your creditors.
Do not sign up with an agency that claims their services are a bankruptcy alternative. These agencies also claim that their services do not impact your credit. They may tell you to stop paying your creditors and to send that money to the agency. There is no guarantee that creditors will accept a partial payment. And, late fees and interest accrues on unpaid balances. Usually, these types of agencies will charge exorbitant fees with little going towards your debt.
How to Select a Consumer Credit Counseling Agency
Consider it a red flag if a credit counseling agency does not send free information about the organization prior to requesting details about your situation. Check the Better Business Bureau, the local consumer protection agency, and with the National Foundation for Credit Counseling about the legitimacy of a list of potential counseling agencies. These organizations can identify any that have had consumer complaints. However, not having a complaint is no guarantee that they are legitimate.
As a follow-up resource, contact the United States Trustee Program for a list of approved credit counseling agencies that can provide pre-bankruptcy counseling.
Once you have narrowed your list, prepare a list of questions to ask such as:
- What are your services? You want an organization that has a range of services such as budget counseling and debt management classes. Steer clear of agencies that have a debt management plan (DMP) as the only option. They should provide other counseling services as well.
- Do you provide free information? Organizations should not charge for educational materials or information about the agency.
- Do you charge fees? Get specific pricing for set-up or monthly fees, if applicable.
- How can you help me avoid future debt problems? You want a plan for managing debt, not a quick scheme to get rid of debt obligations.
- Is this agency licensed to provide financial management services in the state? Are your counselors certified and trained by a non-affiliated party?
Is a Consumer Credit Counseling Agency Suitable for Your Situation?
Speaking with consumer credit counseling agencies is just the beginning. Now, you have to determine whether the services are suitable for your situation, or if you can accomplish more on your own. In essence, credit counseling does not do anything that you cannot do; they simply provide guidance for the best approach to managing your debt. You can contact creditors and negotiate the payment terms of your account. Anybody can do this on their own, but sometimes people need a little extra help staying on track.
Another consideration is whether or not you can become disciplined in spending and creating financial obligations without the credit counseling assistance. These counselors can coach you into staying on target with your financial goals. The reason you are considering these services is because you have fallen off a sound financial path. Utilizing the help of a credit counseling agency could help you gain financial stability.
If you decide to use credit counseling services, read the contract agreement before you sign. The contract should disclose fee or contribution amounts; a description of services; an estimated payoff schedule; termination provisions; and, the dispute resolution process.
The desire for financial freedom is something many people share. If you decide to work with a consumer credit counseling agency, make sure their goals match yours and you are not tied to a scam that can put you into a bigger financial hole.