How to Choose a Credit Counseling Agency

November 04, 2010

If you are knee deep in debt and unable to pay your bills, credit counseling can be a financial lifesaver. A credit counseling agency may arrange a debt repayment plan, a creditor-approved arrangement that allows you to repay your unsecured debts at reduced interest rates.

In these plans, you deposit money each month with the counseling agency. Your deposits are used to pay your creditors according to a payment schedule the counselor develops with you. Some credit counseling agencies charge little or nothing for managing the plan; others charge a significant fee over time. Ask up front what the cost will be.

As part of the repayment plan, you may have to agree not to apply for, or use, any additional credit while you are participating in the program. A successful plan requires you to make regular, timely payments, and could take 48 months or longer to complete.

A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. In fact, creditors may report an account in financial counseling as payments missed, or that there are write-offs. But, a demonstrated pattern of timely payments should help you qualify for credit in the future.

If you want to work with a credit counseling agency, interview several. Check them out with your Better Business Bureau, state Attorney General, and local consumer protection agency. Any reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.

Before you select a credit counseling agency ask for information on the following:

Are the agency services confidential?

Will they devise a plan tailored to fit your needs?

Are the counselors certified?

Are budget and credit education opportunities offered?

Will your funds be protected? How?

Is the agency accredited?