All financial counselors are not created equal. Here's how to avoid scoundrels and find people who will really help you conquer your debts.
Looking for help with debt? You are not alone. By late fall 2015, Americans owed $21 billion in credit card debt, a whopping 34 percent more than the year before, according to CardHub.
This year will be different
Perhaps you’ve decided this is the year when you are going to turn your debt picture around. Money Talks News founder Stacy Johnson suggests that to make good on that resolution, you may benefit from expert help. A credit counselor can stand between you and your creditors, negotiate lower rates and payments on your behalf and, with you, craft a debt pay-off plan and budget you can stick to.
Beware bad actors
Unfortunately, the so-called debt settlement industry is poorly regulated and rife with problems. Some clients found that debt settlement companies not only did not help them find relief, they landed them in an even worse financial situation.
The federal Consumer Financial Protection Bureau explains how to tell the difference between a credit counselor and a debt settlement company.
Find trustworthy help
The safest bet is to get financial counseling from nonprofit agencies like these:
- The National Foundation for Credit Counseling, a national network of agencies vetted and accredited by the Council on Accreditation. The foundation’s agency locator shows trustworthy organizations near you that provide credit, debt and budget counseling in person, online or by phone.
- The Association of Independent Consumer Credit Counseling Agencies represents independent nonprofit providers of credit counseling and debt help. These agencies also are accredited by the Council on Accreditation. Find a member agency here.
- Other sources of help. The Federal Trade Commission says:
Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
What to expect
Trustworthy credit counseling agencies will help you pay off debt and establish and keep good credit. Their counselors will sound like counselors, not salespeople. They’ll help you set up a budget. With debt management plans, you may even have fees waived and interest rates and monthly payments reduced. But they can’t reduce the balance (the total amount) of debt you owe.
ClearPoint Credit Counseling Solutions, a NFCC network member, explains:
It’s a systematic, step-by-step, personalized plan for paying off 100 percent of your debt. Participants make a single monthly payment to a consumer credit counseling service such as ClearPoint, and the agency distributes the funds to their creditors.
It may take three to five years to completely pay off your debts.
Beware of companies promising to reduce how much debt you owe. The CFPB says to avoid companies that:
… offer to pay off your debts with lump sum payments that are less than the full amounts you owe. For example, for every $100 of a loan that a creditor agrees to forgive, the debt settlement company will charge you some portion in fees.
The NFCC explains in detail how to assess a debt-management plan and a credit counselor. Make sure any debt-management plan includes all of your debts, not just some, and that the company commits to providing you with regular reports on your accounts.
When shopping for help managing your debts, look for:
1. Free or low-cost counseling
Many nonprofit credit counseling services provide free advice about credit, debt and budgeting.
There’s no reason for an agency to charge consumers high fees, USA.gov says: “The cost of setting up this debt management plan is paid by the creditor, not you.”
For example, GreenPath Debt Solutions, an NFCC member, charges a one-time setup fee of zero to $50 and monthly fees averaging $36 for a debt management plan.
2. Straight talk about fees
The company should not give you the runaround when you inquire about costs.
3. Free information
There should be no charge for learning all the details you need about an agency and its debt management plans. Also, don’t surrender personal details to get information about a company or its fees.
4. Free help for serious hardships
Agencies should waive fees if you have a serious financial hardship. “If an organization won’t help you because you can’t afford to pay, go somewhere else for help,” advises USA.gov.