Racked up some holiday debt you've sworn to tackle in the new year? A credit counseling agency can help, and the right one might not charge you.
We’re covering financial resolutions this week and next. So far we’ve talked about money hacks and how to budget successfully. Today we’re going to explore what for many people is priority 1: destroying debt.
A newly released study from the National Foundation for Credit Counseling found only 6 percent of consumers surveyed are focusing on reducing their credit card dependency – but 62 percent say their top money goal this year is putting a dent in their debt.
If TV, radio, and Internet ads are any indication, there’s no shortage of help to do it. Commercials promise all kinds of amazing things, from cutting your interest rates in half to settling your debts for pennies on the dollar.
Unfortunately, some of these outfits overcharge and deliver less-than-advertised results – the last thing people struggling with money need. And the highest-quality nonprofit credit counselors don’t bring in enough money to allow much, if any, advertising.
In the video below, Money Talks News founder Stacy Johnson tells you what to expect from a trustworthy credit counseling group. Read on to learn how to find one.
Boil it down, and what credit counselors and others in the debt-busting business do is negotiate with your creditors on your behalf. They let lenders know you’re getting help, and try to negotiate lower rates and reduced fees. If you end on a traditional Debt Management Plan (DMP), you’ll send the agency a monthly check, which they divide up among your creditors.
The traditional DMP plan involves repaying your debts in full over 3 to 5 years. A prerequisite in most programs is forsaking credit cards entirely throughout the process. But talking to a credit counseling organization doesn’t require enrolling in a DMP: Quality organizations provide advice and assistance free of charge.
So if you’re in over your head, here’s how to locate reliable help…
- Check accreditation. If you’re going to seek help with debt, make sure those doing the help are genuine counselors, not salesmen. One way to do that is to ask whether their counselors are accredited. As Stacy said, one of the best accreditations is issued by COA, short for Council on Accreditation. You can find their sorted-by-state list of accredited agencies online. Other good sites to check: The National Foundation for Credit Counseling, the Association of Independent Consumer Credit Counseling Agencies, and the relatively new Association of Credit Counseling Professionals all allow you to search for member organizations.
- Check prices. Like Stacy said in the video above, advice should be free. Even if you end up on a Debt Management Plan, there should be no up-front fees, and whatever they do charge after the fact should be fairly low. The NFCC says: “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.” If you find there’s more than one reputable group in your area, you can compare rates.
- Ask questions. Besides credentials and cost, responses to some basic questions can be telling. Try these: Will your help hurt my credit history? What’s the minimum debt you work with? How long are sessions? These questions and their answers come from the NFCC site, which has several more. A good agency will tell you that a lengthy session (an hour or more) may be necessary to hash out your income, expenses, and debt. They’ll offer to help with debts of any size, and to work with all of your creditors. They’ll also admit their help might show up on your credit report, but won’t hurt your credit score.
As with any relationship, the more questions you ask and the more people you talk to, the better you’ll be able to make an informed opinion on who best will meet your needs.
If the traditional credit counseling relationship doesn’t sound appealing, you can always try to negotiate debts yourself. But when it comes to getting help with debt, you should expect an honest assessment of your situation and options, at a price that doesn’t add to your debt.
Watch out for groups that make big promises for big fees, and especially those that claim to settle debts for pennies on the dollar – they’re usually too good to be true. Check out our stories Should You Consider Debt Settlement? and Debt Settlement Industry Defrauds Consumers for more on the risks.