Finding Quality Credit Counseling

If the bills are piling up and you’re wondering how you’ll ever get out from under, it’s likely that you’d benefit from some credit counseling. Most people put off getting help until their financial lives are in ruins. They feel as though they have no place to turn. In a panic, they’re not thinking they have a choice. But they … and you … do!

Choose the right counseling agency and you can turn your life around. Make no choice or a bad choice and you may find yourself in worse financial shape. If you’ve been in denial, now is a great time to come clean. Pull out the bills and face the facts. Tally up how much you owe and get yourself some expert help.

Perhaps you’ve been putting off credit counseling because you’ve seen the headlines about the IRS cracking down on many agencies that claim to be nonprofit, but turn out to be nothing of the sort. Here’s how to find a gem of an agency amongst all the rest:

Note: Don’t bother looking up “credit counseling” on Google. You’d find some 5.6 million entries, plus lots of ads from websites with catchy names promising to reduce your debts dramatically and get you debt-free in no time. Don’t trust these sites.

Play It Safe
Choose an agency that is a member of the nonprofit National Foundation for Credit Counseling, which provides services in over 1,300 locations to some two million consumers a year. To find the one most convenient for you, call 800-388-2227 or click here. Certified credit counselors are available by phone, over the Internet, via old-fashioned “snail mail,” and in person to help sort out problems with creditors, teach budgeting, create repayment plans, and plan for the future.

Important: Most experts recommend you work with someone face-to-face, at least in the beginning, to get the maximum benefit.

There are other excellent ways to find nonprofit credit counseling services. For example, you may find financial counseling programs where you work or worship, at your bank or credit union, on your military base, at local colleges and universities – as well as through the local office of the Federal Cooperative Extension Service, which offers programs in family finances, as well as in nutrition, horticulture, child development, and housing.

Questions to Ask a Credit Counselor

Is your agency non-profit? Is it accredited? By whom?
Do you offer budget and credit education? What free information can you give me?
What training do your counselors get? Are they certified? By whom? Do they receive commissions?
Are there upfront fees? If so, how much are they? What if I can’t pay?
Can you assure me that all of my credit records will be kept confidential?
How can I track my accounts as they are being paid through your office?
Can I get that in writing? Will we have a written agreement?
For other questions to ask credit counselors, see this excellent advice from the Federal Trade Commission.

You Shop for Shoes …
In the same way that you may try on a few pairs of shoes before you find ones that suit you, you may need to visit a few credit counseling agencies to find one you’ll be comfortable working with. Remember: this relationship may be one that lasts several years, so you want to find a good fit.

Tip: Don’t let your worries over your immediate financial crisis get in the way of finding a place that feels right to you.

It may be unpleasant to realize, but since you didn’t get into financial trouble overnight, you can’t get out of it that quickly either. That doesn’t mean you should have to tolerate someone’s judgmental attitude or a one-size-fits-all approach to debt relief. There should be plenty of free information available to you without you having to go into detail about your finances first.

You want a well-trained professional who will take the time to develop a debt-busting plan customized to your situation – and someone who will teach you about money management. To further guarantee the advice you get is based upon your needs, counselors should receive a steady salary as opposed to commissions based upon the programs they sell to clients, often using high-pressure tactics.

Tip-Offs to Rip-Offs
Keep away from counseling agencies that:

Need details about your situation before they’ll send you any information.
Do not have certified counselors.
Guarantee to wipe out your unsecured debts.
Promise that your debts can be paid off with pennies on the dollar.
Charge substantial monthly fees.
Expect a percent of the amount they save you as a fee.
Encourage you to stop making payments and/or stop communicating with your creditors.
Promise to remove negative but accurate information from your credit report.
Click here for more of Credit.com’s excellent tips for avoiding scammers.

Check Them Out
It’s easy – but very important – to double check on counseling agencies.

Ask for references from former clients willing to discuss their experiences – and follow up with them.
Ask for recommendations from friends and family. Positive experiences among people you trust can go a long way toward assuring that you’ve made a good choice.
Visit the Better Business Bureau and see if there are complaints about any of the agencies you are considering.
See if the agencies are approved by the Department of Justice, which certifies agencies according to the recent (so-called) bankruptcy reforms.
Before filing for bankruptcy, consumers are now required to obtain credit counseling from an approved agency. To get this government approval, nonprofit counseling agencies must employ trained counselors, have a good track record, be bonded, and demonstrate the ability to provide an evaluation of consumers’ unique financial situations, a personalized budget, and an explanation of alternatives to bankruptcy.

Bankruptcy?!
While bankruptcy may be the furthest thing from your mind, choosing an agency approved by Uncle Sam is simply another way to separate the scam artists from the organizations truly focused on helping consumers.

While many people who enter credit counseling do file for bankruptcy, it’s not the only option. For example, more than a third of those who see a member of the National Foundation for Credit Counseling are able to manage their debt on their own after receiving financial education and counseling.

Many others participate in debt management plans (DMP), where they send one monthly check to the counseling agency, which then distributes payments against their unsecured debts – for example, credit card, medical bills, and student loans – following a payment schedule that the counselor has developed between the consumer and the creditors.

If you choose to go the DMP route – after you’ve reviewed a range of options – choose a credit counselor that will negotiate better terms with your lenders. For example, your interest rates may be lowered and some fees may be waived. On the other hand, you may have to forfeit the right to use or apply for additional credit during the term of the DMP.

How long will that be? Your credit counselor should be able to let you know how long that will take, based upon a monthly payment you can afford, along with your other monthly expenses. If you’ve racked up substantial debts, it could take four or five years to complete your DMP. But before you start following it, make sure your creditors are on board – and be sure to keep up the payments on your secured debts.

Tip: Ask the credit counselor to see if your accounts can be “re-aged” – that is, made current. You will have to make a number of payments before lenders will do so, but it’s an important step in rebuilding your credit, even though negative information (e.g., past late payments) will remain on your credit report.

Click here for more tips from the Federal Trade Commission on making a DMP work for you.

Whatever You Do ...
Don’t ignore your financial problems! As Susan C. Keating, President and CEO of the National Foundation for Credit Counseling, puts it:

“For those consumers who live close to the financial edge, even a small wobble – a cut in pay or change in their recurring expenses – can endanger their economic stability. ... But, too often, our counselors don't get a chance to get in the game until consumers are already in serious financial difficulty. ... I can't count the number of times I have heard a frustrated agency professional say ‘if only we could have talked to them sooner.’"

No matter what your financial situation is, you can get help – but you have to seek it out. The sooner you get going the better!

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* Nancy Castleman has spent the last twenty-three years showing people how to save money, get out of debt, and live better on less. Her Good Advice Press website includes many free articles as well as information about her books and free e-letter.