Find a good credit counseling agency to help resolve your credit troubles.
There are hundreds of organizations that provide credit counseling. Most of them are reputable services committed to helping consumers resolve their money troubles. However, some charge excessive fees, provide questionable advice, and fail to actually deliver the services they promise.
If you need credit counseling, how can you avoid the rip-off services and instead choose a legitimate, competent credit counseling agency that looks out for your best interest? From the outset, you should focus on what services the credit counseling agency can provide. Then, follow the tips below to research the legitimacy of credit counseling services.
WHAT IS CREDIT COUNSELING?
For consumers who are struggling to pay their debts and make ends meet, a credit counseling service can provide information, guidance, and solutions. Credit counseling agency services include:
– Money management education;
– Budget counseling;
– Debt counseling; and
– Housing counseling (HUD-certified agencies), and referrals.
Credit counseling services will usually offer you a “debt management plan.” As part of your debt management plan, the agency will negotiate lower interest rates and monthly payments with your credit cards and other creditors. Monthly payments are consolidated into a single payment that participants make to the credit counseling service, which then disburses the funds to your creditors according to the terms of your debt management plan.
The cost of these services varies from agency to agency and according to state law, but many organizations provide counseling at no or low cost. Instead, individuals typically pay a monthly fee for participating in the debt management plan. The majority of agency funding comes from kick-backs paid by your creditors, who are receiving payments from the agency through your debt management plan.
HOW DO I CHOOSE A CREDIT COUNSELING AGENCY?
To make sure you get quality services from a credit counseling agency, you must choose wisely. Start by getting referrals from friends and family. Also, check the listings at the National Foundation for Credit Counseling (NFCC), and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) at www.aiccca.org. Then, make sure the agency meets the following criteria:
Is an accredited nonprofit. At a minimum, any service you choose should be a registered nonprofit. But because some agencies have abused their nonprofit status, you should also be sure the service is accredited. Accreditation will most likely be by the Council on Accreditation (COA) or the International Organization for Standardization (ISO).
Is an NFCC or AICCCA member agency. Members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA) are held to strict quality, financial, and ethical standards by these organizations.
Employs certified counselors. In addition to completing the agency’s internal training program, credit counselors should be required to pass a certification exam that tests for understanding in areas such as counseling, budgeting, credit and consumer law, debt management, and bankruptcy. The exam should be administered by an independent agency such as the Association for Financial Counseling and Planning Education, the Center for Financial Certifications, the National Association of Certified Credit Counselors, the National Foundation for Credit Counseling, or another qualified organization. If you need counseling for housing issues, such as foreclosure prevention, choose an agency certified by the U.S. Department of Housing and Urban Development (HUD).
Provides substantive counseling and education. The counseling session, whether conducted in person, by phone, or via the Internet, should last approximately one hour and cover your entire financial situation, including income, expenses, debt, the reason for your current financial situation, and your goals. At the end of the session, you should receive a proposed budget plan, a list of next steps, and a presentation of your options. The counselor should provide, or at least offer, free educational materials, the opportunity to attend free money management workshops (if available in your area), and the option for follow-up counseling.
Provides more than one debt management option. Every counseling session should result in more options than just the agency’s proposed debt management plan. Although its debt management plan can reduce your monthly payments, fees, and interest rates, this is not a one-size-fits-all solution. Beware of any counselor that recommends a debt management plan before completing a comprehensive counseling session, pushes his or her debt management plan as the only option for you, or reveals that he or she is compensated if you sign up for the agency’s debt management plan.
Charges reasonable or no fees. The agency should provide free counseling, or charge only a nominal fee. The fee to establish a debt management plan should be no more than roughly $50. The monthly fee for administering a debt management plan is typically a percentage of your monthly payment. The maximum should be around 10% (but no more than $50), and the agency should be willing to waive your fees if you can’t afford them.
These fees and the program guidelines should be put in writing. Beware of any organization that pressures you to make “voluntary” contributions, or those that will only include unsecured creditors that support the agency financially through “fair share” contributions when creating your debt management plan.
Makes up-front disclosures about services, fees, and revenues. If the organization won’t send you general information without first getting your personal and financial information, go elsewhere. In addition to disclosing fees, the agency should disclose its sources of revenue. It should also provide an estimate of how long it will take you to pay off your debts under your debt management plan if you choose to sign-up. If that period exceeds 48 to 60 months, the agency’s debt management plan may not be your best option. During your participation in their debt management plan, the agency should send you detailed statements (at least quarterly but preferably monthly) that show your payments, disbursements, and estimated balances.
Has a clean business record. Check with the Better Business Bureau and your local consumer protection agency for unresolved complaints against the credit counseling agency. Also check with your state attorney general for complaints or legal actions filed against the organization. Also, ask your counselor about the agency’s complaint resolution process. If the company doesn’t have any such a process, go elsewhere immediately!
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