If youâ€™re overwhelmed by debt and can barely make even a minimum payment on your credit cards,Â one of your resolutions may be to seek help to find a way out.Â Unfortunately, not all agencies that offer debt help are created equal, and some are most interested in their own bottom line.
There are reputable agencies out there; you just have to know how to evaluate them.
1. Is the agency accredited?
This is one of the first things you should consider before moving forward with a credit counseling agency. Although most are nonprofit, you should notÂ simply select the first agency you run across. A leading source of accreditation in the industry isÂ the Council on Accreditation.Â The National Foundation for Credit Counseling requiresÂ that all of its members have COA accreditation.
Next, the Federal Trade Commission urgesÂ you to check the agencies you are interested inÂ with your state’s attorney general and local consumer protection agency.Â Your state may also require credit counseling agencies to register with the state. If thatâ€™s required, have they done so?
The FTC also says:
A 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 a firm doesnâ€™t do that, consider it a red flag and go elsewhere for help.
2. What are the fees?
If the fee structure is commission-based, run away in the most rapid manner possible, as they are more than likely inclined to try to sell you services you donâ€™t need.Â All advice should be free, and the monthly paymentÂ for a debt management planÂ should not be more than $50. And I should also add that it is wise to always get your price quote in writing so amnesia doesnâ€™t set in later on down the line.Â In the event that the cost of services exceeds what you can afford and the agency is unwilling to assist you at no cost, thatâ€™sÂ another bad sign. Find another agency.
3. WhatÂ effect will their services have on your credit scores?
The correct answer: Seeking advice from a credit counseling agencyÂ willÂ not damageÂ your credit scores. Thatâ€™s true even if you enter a debt management plan, says the NFCC. However, make sure the agency will always make payments to your creditors on time. A late payment will lower your scores.Â If the organization tells you it can get accurate negative information removed from your credit reports, itâ€™s not being truthful with you. â€œLegally, it canâ€™t be done,â€ the FTC says.
4. How will they help you?
Credit counselors can provideÂ lots of free information and advice for getting control of your financial situation. They also offer a paid service called a debt management plan. Another warning: If an agency isÂ quick to direct you to a debt management plan without knowing the details of your situation and considering other options first, thatâ€™s a sign that it might not be reliable.
But if a debt management plan is in your best interest, it will work like this. What they essentially involve is having the agency get between you and yourÂ creditors to help facilitate a payback plan â€“Â one that often includes reducedÂ interest rates, waived penalties and fees, and monthly payments you can afford.Â Once this deal has been worked out, you agree to close any open credit accounts and thereafter send one monthly payment to the counseling agency, which they divideÂ among your creditors. These plans typically lastÂ four to fiveÂ years.
5. Do they offer financial-planning resources?
The point of credit counseling is to make your debt more manageable and help you establish more sound financial habits. Many agencies offer personal finance courses that cover budgeting, saving, and debt management to help accomplish this objective. They should not come with a price tag.
7. Is there a contract?
Make sure that every aspect of the service is included in a written contract. Read it before you sign.
8. How do they promote themselves?
Reputable credit counseling agencies normally donâ€™t have huge advertising budgets and they donâ€™t make excessiveÂ claims. The Better Business Bureau saysÂ to beware of â€œboasts that it can â€˜lower your monthly payments by 30 to 50 percent.â€™ This bold statement is rarely, if ever, true.â€
Stacy Johnson is a personal finance author, speaker, and television news personality. His Money Talks News series has aired for more than 20 years on dozens of network affiliates nationwide. In addition toÂ MoneyTalksNews.com, his personal finance articles and videos appear regularly on MSN Money, Yahoo Finance,Â Readers Digest,Â The Christian Science Monitor, The Street.com and many others. Johnson has been awarded two Emmys and written three books, includingÂ Life or Debt, andÂ Money Made Simple.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.