If you’re dealing with bad credit or debt collectors, or simply living paycheck to paycheck and struggling to sustain a workable budget, you might want to consider seeking the help of a credit counselor. Counseling can assist you with financial problems, ranging from minor concerns of general budgeting to complicated issues like bankruptcy. Credit Counseling is a wonderful service, but there are some drawbacks. Unscrupulous folks lurk in every industry, even in the world of credit counseling. Some people out there will gladly take advantage of a person in desperate financial circumstances. That’s why you need to learn how to separate legitimate counselors from sharks before you embark on your quest.
Here is your reliable guide to credit counseling.
How Credit Counseling Works
First, a credit counselor will look at your entire financial situation. Don’t be embarrassed; be upfront and forthcoming about your income and current expenses. Let the counselor know everything, as he or she will use this knowledge to help you create a plan of action for paying off all your debt. Trustworthy, reputable counselors will not only build you a plan for debt repayment but also set up a money management plan. The counselor will recommend money management workshops and free resources.
Sounds great, doesn’t it? If you’re honest about your circumstances and willing to follow any guidance your counselor might give you, this kind of assistance can help solve your credit woes and keep you out of trouble in the future. Working with a reputable credit counselor is also a plus point for you in any negotiations with creditors. It shows that you take your situation seriously and that you’re working to improve it, and that makes your creditors more willing to make a deal.
What services are available?
Agencies typically provide most, if not all of the following services:
- General budgeting – The counselor looks at your financial life overall, using this information to help you create a workable budget.
- Debt management plan – Generally, your counselor will create a debt consolidation plan with the goal of eliminating your debt within a 3 to 5 year period. He or she will assist you in negotiating lower interest rates with your creditors and will try to consolidate multiple monthly bills into a single monthly payment.
- Bankruptcy counseling – A counselor will organize two financial education sessions with you. He or she will conduct the first class before the process of filing for bankruptcy, and then complete the second before your debts are discharged.
- Student loan counseling – So many people need this one! A counselor will discuss repayment options, and may even facilitate the necessary conversations with the folks who issued you the loan!
- Housing Counseling – “housing counseling” helps people who are struggling to pay rent, or who are buying a home for the first time. A counselor will discuss available options and help you better understand how to manage the cost.
Find an agency that works for you.
The first things you should look for in any agency are accreditation and certification. The best way to verify that any agency is legitimate and reputable is to enquire if they’re accredited and certified. If they’re not, you may well be looking at a wolf in sheep’s clothing. If you want to avoid a ripoff, run.
Stick with non-profit agencies that are members of either the National Foundation for Credit Counseling or the Financial Coaching Association of America. Both of these organizations have certification and education requirements for credit counselors. They also require an accreditation from an outside agency tasked with ensuring that the counseling service meets accepted standards of practice.
It’s best to avoid (or at least be extremely wary of) any for-profit agencies. For-profit counseling isn’t the norm, and agencies like this have the biggest chance of being scam-central.
Another thing to take into account is cost. Even if an agency is non-profit, there still can be a monthly fee for services. This charge might sound odd, but even if an agency isn’t making any money from you, the tools provided to assist you often cost something. Make sure you understand the overall cost before committing to anything. Consider accessibility as well. Many counselors require that you come to their location, so you want to choose one you can reach quickly. If you prefer (or only have access to) online or over-the-phone interactions, you’ll need to ask the agency if they offer this kind of service.
Important tip– Avoid agencies that are pushy about a debt management plan (DMP). If they’re not willing to take the time needed to analyze your financial situation in detail, and tout a DMP as your only option, their agency is of no use to you. Walk away and find somebody who wants to help you!
Here are a few questions you might want to consider before committing to a specific agency.
Is the agency licensed to offer services in your state?
What services do they provide? Whether it’s creating a budget or assisting you with bankruptcy, be sure they offer the services you need before making an agreement.
Do they offer educational materials and information free of charge? Avoid agencies that want to charge you for this kind of information.
In addition to helping you with your immediate issue, will they help you develop a plan to avoid future financial problems? If not, find somebody who will. You want to fix your problem permanently.
Are the agency’s employees certified or accredited by an outside body? If so, what organization? If not, what kind of training and qualifications do they have? Your best bet is to work with counselors whose agency provided them with training from a non-affiliated body.
Will the counselor keep your private information confidential? What assurance do you have that it is secure?
What kind of fees do they charge, and for what? Be sure to get a detailed price quote in writing.
Are they still willing to help you if you can’t afford to pay these fees? Obviously, if an agency is unwilling to help you in this situation, walk away. Find one that wants to help!
Will there be a written agreement? Don’t sign a contract until you’ve read it thoroughly, and make sure the agency puts any verbal promises in writing. If there’s no contract, or if an agency is unwilling to provide you with a copy to read first, be on your guard!
Special bonus question – Casually ask how an agency’s employees get paid. Inquire if they’re paid more when you contribute to the agency, pay fees, or if you sign up for specific services. If the answer is yes to any of these questions, you’ve just uncovered a major red flag. These folks want your money and probably aren’t legitimate. Start looking to another organization for help.
There’s a chance you’ll run into disreputable, low-life credit swindlers, so keep a sharp eye and make sure to ask the questions mentioned above. Some red flags for illegitimate counselors include asking for money up front with no free resources; charging hiding fees; claiming their services are alternatives to bankruptcy and boasting they’ve got some secret technique you couldn’t possibly pass up. Again, tell them to have a nice day and hang up the phone.
As with any other time you’re seeking services, shop around. The initial session with any legitimate credit counseling agency should be free, so you can try out a few organizations and see which one suits you best. Since the initial session is free, get the most out of it. Take the time you need to gather all your financial details before making the call. The more details you have, the better. Make sure you find a counselor with whom you feel comfortable because you’re entrusting both your time and private financial information to them.
The Federal Trade Commission (FTC) has a web page to help you avoid dishonest agencies or scams. Just go to consumer.ftc.gov and check it out. Good luck!