CHOOSING A CREDIT COUNSELING AGENCY
If you are in debt and finding it difficult to pay your bills, credit counseling can be a financial lifesaver. The right counselor can advise you on how to use credit wisely; help you establish a workable budget, keep track of your bills and manage your money; and, if appropriate for your situation, arrange a repayment plan with your creditors. In short, a trained and certified specialist can place you on the track to financial security.
How Credit Counseling Works
Once you have selected a reputable credit counseling agency, you will be asked to provide information about your income, expenses and debts. The counselor should analyze the information, discuss your situation with you and make recommendations to help you address your financial problems. These suggestions may include participation in an educational class, enrolling in a debt-management/repayment plan, or referral to another organization, such as a relationship counseling or state employment agency, for assistance to address any non-financial situations you may be experiencing.
Choosing an Agency
Debt Management Plans
A debt repayment or debt management plan (DMP) is a creditor-approved arrangement that allows you to repay your unsecured debts at reduced interest rates. The credit counselor will negotiate with creditors to reduce interest rates, eliminate late fees or other penalties. In turn, you will be expected to make a regular monthly payment to the credit counseling agency. Instead of writing several checks to various creditors each month, you make one payment (usually electronically) to the counseling agency. Your payments are then used to pay your creditors according to a payment schedule the counselor has developed in consultation with you.
Some credit counseling agencies charge a modest monthly fee for managing the plan; others charge a more significant fee. Agencies that are members of the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies (AICCA) are bound by standards that limit the charges for their services. Some states also have strict limitations. Before enrolling, ask what the cost will be. If the fee is too high or you are asked for a large "voluntary" contribution, then you may want to consider selecting another agency.
A successful DMP generally takes 30 to 60 months to complete. Recognize that you will be expected to agree to not apply for any additional credit and not incur any additional debt while you are participating in the repayment plan. If you are enrolled in a DMP, the agency should provide regular statements to you showing how your funds were distributed. If you discover that your creditors are not being paid, contact the counseling firm immediately.
DMPs usually cover only your unsecured debts. If you have secured debt - such as a car loan or a mortgage - you must continue to make payments to these creditors directly or you could lose your property. Ask which debts will be included and excluded from the DMP.
Finally, while it is best to be optimistic regarding the success of your DMP, you should consider what happens if you cannot maintain the agreed-upon plan. For example, if you are unable to make payments to your DMP, you may lose associated benefits, such as lower interest rates and fee waivers.
Red Flags That Signal Trouble
The following can indicate that a particular agency is not abiding by good business practices.
* Demands that you provide account numbers or other financial details before it will discuss its services or fees. Reputable credit counseling agencies are happy to provide free information upfront about their services. * Boasts that it can "lower your monthly payments by 30 to 50%." This bold statement is rarely, if ever, true.* Promises that it can "get you out of debt easily." This is an irresponsible advertising claim. Getting out of debt is rarely an "easy" task. Avoid counselors who promise a quick and easy way to fix your credit problems.* We won't need much time. Steer clear of any agency that claims it can evaluate your situation in just minutes, or that offers to do so quickly over the phone. If services are provided over the phone, make sure the counselor is evaluating your personal situation, and not rushing to provide generic advice that could apply to any consumer. Experienced counselors may want to spend close to an hour with you reviewing your financial situation before recommending how to address your financial condition, and may offer follow-up sessions. * Claims that it can remove negative information, such as bankruptcy, from your credit report. It is illegal to make such a representation if the negative information reflects your true credit history. Accurate information cannot be removed from a person's credit report.* Issues a blanket recommendation for a dept management plan. DMPs are not for everyone. Do not agree to establish one unless and until you have reviewed your personal situation with a certified credit counselor who recommends such a plan and then customizes the plan to best manage your debt.* Requires "voluntary" contributions. Required "voluntary" contributions are not voluntary! * Is reluctant to provide the organization's business name and address. This is a clear sign of impending fraud. A toll-free telephone number or e-mail address is not sufficient. Scam artists typically avoid providing their physical location to thwart law enforcement detection.* Insists that you make an immediate decision. Reputable credit counselors will permit you time to evaluate their offer, shop around and make a determination that best suits your financial situation. As you are doing your research, however, remember that timing is critical when addressing your financial situation. Delays can cause your circumstances to worsen.