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This week we have a short question…
Are there any services available for consumers to use for credit card debt repayment? Ones that are safe and you can trust?
The answer to your first question is simple, Dawn. Yes, there are tons of services that help consumers with credit card debt. The answer to the second question is also yes, but requires a bit more explanation.
Several years ago, a very close friend of mine was in debt hell. Because of a bad relationship (her live-in boyfriend refused to work), she was unable to pay her bills. In addition to an overdrawn bank account and maxed-out credit cards, she even owed thousands of dollars on an engagement ring her beau had bought and never paid for. The only solution she could see was moving back in with her parents until she could regain her financial footing.
I offered another option: credit counseling.
A reputable credit counseling agency will put you on a debt management plan (DMP). This means they step between you and your creditors. They’ll make the collection calls stop, help you prepare a repayment plan, possibly get some interest rates reduced and fees eliminated, and offer a specific date when you’ll be debt-free. After entering a DMP, you’ll stop using credit cards and start sending one check monthly to the agency, which they’ll divide into prearranged payments and forward to your creditors.
What made credit counseling work for my friend is that she had income – you can’t repay debt without it. Because she had a good job, all she needed was some room to breathe, and credit counseling offered it. Her plan, like most, took just over four years to complete. Today she’s debt-free, has a nice savings account, and has a much better boyfriend.
The vast majority of credit counseling agencies are nonprofit and free. In fact, if you ever have questions about anything debt-related, you should call one of theses agencies and fire away: They’re typically knowledgeable and super-helpful.
Debt management plans, however, aren’t free. You’ll normally pay a monthly fee of $25 to $50, although that can be waived if you can prove hardship.
Finding the right credit counseling agency
The potential problem with the credit counseling industry is how they keep the lights on. Since they’re charging their clients very little, they have to raise money somewhere. One of the chief providers of their funding has historically been the banking industry.
Since credit card companies and other lenders are the ultimate beneficiaries of people paying their bills, they often return a portion of the money collected by DMPs to the counseling agency. This is called “fair share.” While fair-share payments aren’t as generous as they used to be, they can still provide an incentive for employees of these agencies to put you on a plan. After all, that’s the only way for them to make money.
There have been instances where unscrupulous agencies jammed everyone who called into a debt management plan, even if they didn’t belong in one. For example, some people can pay off their bills with just a little coaching – they don’t need a formal plan. Others are too far gone and should file bankruptcy. But since those options didn’t create income for the agency, they weren’t offered.
How do you find a reputable credit counseling agency? Good agencies…
- Disclose all fees, and keep them small. According to the National Foundation for Credit Counseling (NFCC), “Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship.”
- Are accredited by the COA and affiliated with the NFCC. If an agency is certified by the Council on Accreditation (COA), you can be sure their counselors have had training. Another way to locate a reputable credit counseling group is to search through the NFCC, which has a 60-year record and only supports legit groups. They also have a lot of advice on what to expect from credit counseling.
- Work with you and all your creditors as long as necessary, by whatever means necessary. A serious organization will keep working with you until you don’t need them. They’ll offer service by phone, online, and in person. They’ll take a holistic approach and sound like a counselor, not a salesman.
- Spend resources educating people, not on lots of TV advertising. There may be decent agencies advertising on TV, but my experience would suggest that most quality agencies put what little money they have into helping people, not on ads.
- Offer honest assessments of your credit and options. A good counselor will help choose among every available option, from tweaking your budget to filing bankruptcy. They’ll also let you know that signing up for a DMP won’t damage your credit score but could look bad to some lenders.
- Tailor the plan to your needs. Some people just need to trim a little spending to repay their debt, while others need a debt management plan. A good agency will listen to what you need, rather than pushing pre-packaged solutions.
- Help anyone who asks. Reputable groups don’t place restrictions on who they help, as long as they can provide the necessary paperwork. They’re not judgmental, either.
- Are licensed, insured, and answer to you. Trustworthy agencies earn trust by proving that they have the proper legal backing and by providing you with a statement at least quarterly.
Interested in learning more? You’re in the right place. We’ve written extensively about dealing with debt. Some examples…
- Reader Shrinks Credit Card Debt
- 5 Tips to Find the Right Debt Relief Agency
- Can I Negotiate Debts Myself?
- 3 Steps To Improve Your Credit History.
And last, but I hope not least, my book, Life or Debt.