Credit Counseling
What do credit counseling agencies do to help?
A reputable credit counseling organization can give you advice on managing your money and debts, help you develop a budget, offer you free educational materials and workshops, and help you make a plan to repay your debt. Its counselors are certified and trained in credit issues, money and debt management, and budgeting.
Good credit counselors spend time discussing your entire financial situation with you before coming up with a personalized plan to solve your money problems. Your first counseling session will typically last an hour, with an offer of follow-up sessions. Good counselors won’t promise to fix all your problems or ask you to pay a lot of money before doing anything.
How can I find a credit counselor I can trust?
Most reputable credit counseling organizations are non-profits with low fees, and offer services through local offices, online, or by phone. If you can, use a credit counselor you can meet in person. Non-profit credit counseling programs are often offered through
credit unions
universities
military personal financial managers
U.S. Cooperative Extension Service branches
Your financial institution or local consumer protection agency also may be able to refer you to a credit counselor.
How do I check out a credit counseling organization?
Just because an organization is a non-profit doesn’t guarantee its services are free or affordable, or that it’s legitimate. Some credit counseling organizations charge high fees, which they might not tell you about.
A reputable credit counseling organization should send you free information about its services before you say anything about your situation.
You can check out organizations you’re considering with your state attorney general and local consumer protection agency. They can tell you if they have any complaints about the organizations. Even if there are no complaints, it’s not a guarantee that they’re legitimate. Also ask your state attorney general if companies are required to be licensed to work in your state. If so, ask whether the companies you’re considering are licensed.
The U.S. Trustee Program keeps a list of credit counseling organizations approved to give pre-bankruptcy counseling, but it doesn’t endorse any particular organization on the list.
After you’ve done your background investigation, interview the final candidates. Choose an organization that:
does not charge you in advance for help that it hasn’t given yet
has credit counselors that are accredited or certified by an outside organization
offers a range of services, including budget counseling, debt management classes, and free educational materials
will give you a specific quote in writing for any one-time or monthly fees
will help you even if you can’t afford the fees or contributions
Be sure to get every detail and promise in writing, and read any contracts carefully before you sign them.
What’s a debt management plan?
A good credit counselor will spend time reviewing your specific financial situation and then offer customized advice to help you manage your money. After that review, a counselor might recommend that you enroll in a debt management plan to help repay your “unsecured” debts like credit card, student loan, or medical debts. (Debt management plans aren’t for debts “secured” by collateral like houses or cars.)
But if a credit counselor says a debt management plan is your only option, and says that without a detailed review of your finances, find a different counselor.
If you and your counselor decide a debt management plan is best for your situation, it’s a good idea to check with all of your creditors. You want to be sure they offer the types of modifications and options the credit counselor describes to you.
Here’s how a debt management plan generally works:
The counselor develops a payment schedule with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees.
You deposit money each month with the credit counseling organization.
The counselor uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to the payment plan.
Is a debt management plan a good idea?
Whether a debt management plan is a good idea depends on your situation. They don’t help everyone. A successful debt management plan requires you to make regular, timely payments, and can take 48 months or more to complete. You might have to agree not to apply for — or use — any more credit until the plan is finished. No legitimate credit counselor will recommend a debt management plan without carefully reviewing your finances.
