Is one of your New Year's resolutions to get out of debt? Here's how to find a counselor who will actually help rather than rip you off.
If you’re overwhelmed by debt and can barely make even a minimum payment on your credit cards, one of your resolutions may be to seek help to find a way out.
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. Money Talks News money expert Stacy Johnson offers some tips to help you assess agencies before making your final selection. Watch the video below and continue reading for additional factors to consider before you choose.
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 not simply select the first agency you run across. A leading source of accreditation in the industry is the Council on Accreditation. The National Foundation for Credit Counseling requires that all of its members have COA accreditation. The Association of Independent Consumer Credit Counseling Agencies also requires its members to be accredited by COA or one of two other organizations.
Next, the Federal Trade Commission urges you to check the agencies you are interested in with your state’s attorney general and local consumer protection agency. Your state may also require credit counseling agencies to register with the state. If that’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 doesn’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 don’t need.
All advice should be free, and the monthly payment for a debt management plan 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 doesn’t set in later on down the line.
In the event that the cost of services exceeds what you can afford and the agency is unwilling to assist you at no cost, that’s another bad sign. Find another agency.
3. What effect will their services have on your credit scores?
The correct answer: Seeking advice from a credit counseling agency will not damage your credit scores. That’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.
If the organization tells you it can get accurate negative information removed from your credit reports, it’s not being truthful with you. “Legally, it can’t be done,” the FTC says.
4. How will they help you?
Credit counselors can provide 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 is quick to direct you to a debt management plan without knowing the details of your situation and considering other options first, that’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, as Stacy Johnson previously explained:
What they essentially involve is having the agency get between you and your creditors to help facilitate a payback plan — one that often includes reduced interest rates, waived penalties and fees, and monthly payments you can afford. 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 divide among your creditors. These plans typically last four to five 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 don’t have huge advertising budgets and they don’t make excessive claims. The Better Business Bureau says to beware of “boasts that it can ‘lower your monthly payments by 30 to 50 percent.’ This bold statement is rarely, if ever, true.”
Do you have any additional tips to offer? Feel free to share in the comments below or on our Facebook page.