1. What is consumer credit counseling?
Consumer credit counseling is a debt relief solution offered as an alternative to bankruptcy, designed to educate and advise those who have allowed their debt load to grow beyond their control. Credit counseling is best for people who cannot make their minimum monthly payments and are considerably behind in their accounts. Credit counseling programs teach consumers how to live on a budget, using part of their take-home income to pay off current obligations while curbing their use of credit until their debt is fully paid off. Typically, most credit counseling services charge a fee for helping their clients work their way out of debt.
2. When do I know I need credit counseling?
Here are some warning signs that illustrate you need credit counseling:
- You are regularly late making payments on one or more of your accounts.
- You can’t afford the minimum monthly payments on your credit cards.
- You’re being badgered by creditors and collection agencies for payment.
- You’ve been unable to successfully negotiate an acceptable repayment plan with your creditors.
- You lie to your friends and family about your spending and your debt.
- You don’t even know how much debt you have.
3. What should I look for when selecting a credit counselor?
When selecting a credit counseling service it is important to make certain that they are accredited and, if so, by whom, as there are plenty of unethical agencies wanting to take your money. The Better Business Bureau and the National Foundation for Credit Counseling are two great places to start.
According to Steve Bucci, former president of Consumer Credit Counseling Service of Southern New England and Debt Advisor columnist for Bankrate.com, the credit counseling service should be accredited by the Council on Accreditation (COA) or the International Standards Organization (ISO). Remember to make certain that their accreditation is current and has not lapsed.
Be on the lookout for claims that appear to be too good to be true; most likely they are. If an agency promises to get rid of all your debt without charging you a penny, it’s a false promise.
Always try to avoid agencies that make outlandish promises, such as claiming that they can settle debts with your creditors for little or no money, or that enlisting their services won’t impact your credit score in any way. In addition, watch out for large upfront fees – all your fees should be nominal with a legitimate agency.
4. What questions do I need to ask a credit counselor?
What are the services you provide? One of the first things you need to know about the agencies you are considering is what services they can provide you. Credit and debt counseling services encompass a variety of possibilities, but they typically fall under two headings – those that educate and counsel you on how to deal with and reduce your debt (credit counseling), and those that actually negotiate with creditors to lower or eliminate your debt (debt counselors).
What are the credentials of your counselors? Look at the educational and professional credentials of the agency’s counselors. Are they licensed and certified? Are they CPAs, lawyers, or Certified Financial Planners? Because you are making a decision that will impact your financial future, don’t just take an agency at face value. Legitimate, independent certification from outside the organization is important.
How can I contact you, and when are you available? A good quality counselor is available over the phone, in person, and through the Internet. How the service is provided is just as important as the people providing it. It needs to be easy and accessible.
What is the cost? The bottom line question is, “How much is this going to cost?” Don’t feel embarrassed asking; it is a reasonable question and must be asked. Have them detail their fees, which should be simple and straightforward, and how they make money through your relationship. Most legitimate non-profit counseling firms will charge $100 or less for an hour of counseling, and in some cases the initial meeting to calculate your financial situation is even free. You are in the wrong place if someone starts quoting you a complicated list of fees and percentages.
5. How long will it take to pay off my debt?
Debt repayment varies from client to client, the terms being offered by creditors, and the total amount of debt you owe. Your counselor should be able to give you a more realistic answer once they evaluate your entire debt situation.
6. Will credit counseling affect my credit?
There seem to be two schools of thought concerning whether or not credit counseling will impact your credit and, if so, by how much. Some lenders will see it as a positive move forward since you are attempting to take financial responsibility for your life. Others will perceive you as a higher risk since you were previously unable able to control your debt load.
Realistically, your credit rating will probably be affected by using the agency’s service, but it does not hurt to ask the companies you are considering how much it will be impacted.
7. How can I get a copy of my credit report?
You can get your credit report in one of three ways – online, by phone, or by postal mail. All consumers are entitled to a free credit report once every 12 months from the three major credit bureaus – Experian, Equifax, and TransUnion. Perhaps the fastest and easiest way to get your report is to go to www.annualcreditreport.com. You can see it immediately and print it out.
8. Are the ads for companies claiming they can completely eliminate my debt legitimate?
Experts give an emphatic no. Even after your legitimate debts have been paid off, they stay on your credit report. Steer clear of any company promising to “wipe away your debt” or settle with your creditors for little or no money, without affecting your report. The reality is that there are no magic solutions to debt problems.
The only way to overcome uncontrollable debt is through patience, hard work, and some sacrifice. The key to finding successful credit counseling lies in information gathering, educating yourself, asking the right questions and following through. If you want to live within your means, use these guidelines to find a certified, professional, and competent credit counselor. You can then get the advice and tools you need to be on your way to living a debt-free life.