Ask Stacy: Should I Use a Credit Counselor for Debt Help?

If you're in debt trouble, there's free help available. But not all of it is on the up and up.

Ask Stacy: Should I Use a Credit Counselor for Debt Help? Photo by iRomolo Tavan / Shutterstock.com

Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is one I’ve gotten dozens of times. It’s about whether there’s any way to find free help with debts. The answer is yes, but you must be careful when you pick a credit counselor.

Watch the following video to learn how to do it right. Or, if you prefer, scroll down to read the full transcript and find out what I said. You also can learn how to send in a question of your own below.

For more information on this topic, check out “Ready to Tackle Your Debt? 12 Tips to Find Free or Cheap Help” and “Ask Stacy: I’m Drowning in Debt. What Can I Do?” You can also go to the search at the top of this page, put in the words “debt help” and find plenty of information on just about everything relating to this topic.

Finally, if you need debt help now, visit this page of our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, everyone, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson, and this question is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Today’s question comes from Bert:

Can you discuss credit counseling companies? The third parties that work with your creditors? Do they do anything I couldn’t do myself? Are these third parties likely to get better terms for me to pay back creditors than I could get myself? Will they work to help consolidate payday loans?

Let’s answer these questions one at a time. First, let’s define what a credit counselor is.

There are organizations out there — most of which are nonprofits — that will stand between you and your creditors and help you get out of debt. They may put you on what’s called a debt management program, or DMP. That means you’ll be sending them a check every month and they’ll be dividing that check among your various creditors. They also may try to negotiate lower rates, maybe get some fees waived and do other things that might help you pay off that debt as soon as possible.

Debt management programs have their drawbacks. For example, they typically insist you don’t use credit cards while in the program. It also takes time. The average length of a debt management program is around four years.

Still, I’ve known many people who have used this method to destroy their debts. So, it can be a great thing to do. A debt management program certainly beats the heck out of staring at the ceiling at night wondering how your bills are going to get paid. It also beats the constant calls from creditors demanding money. So, I’m a big believer in credit counseling.

Now, let’s go back and take another look at Bert’s questions. “Do they do anything I couldn’t do myself?” Theoretically, Bert, they don’t. There’s no law that prevents you from calling up your creditors and trying to do some sort of repayment program. However, nonprofit credit counselors normally charge nothing to talk to you and very little if they put you on a debt management program. In fact, if you can’t afford it, they won’t even charge you at all.

If it doesn’t cost anything and you can avail yourself of the resources brought to the table by professional credit counselors, I’d suggest you do so.

I’ve been on the board of directors for two different credit counseling agencies over the years and understand how these companies work. In fact, one of my first news stories back in 1991 was about credit counseling. I know a lot about this business and I’m telling you, get the right agency and you’ll be doing yourself a favor.

Let’s answer the next question. “Are these third parties likely to get better terms than I can get myself?” They probably will. They’ll certainly do it with a lot less effort on your part.

The final question: “Will they work to help consolidate payday loans?” While they tend to specialize in credit card debt, a quality credit counselor should be able to help you with almost any kind of debt.

Counselors specialize in credit cards because credit card debt is so common, and they have relationships with many banks, which makes getting concessions automatic in many cases. It may be more difficult for them to get the same breaks when it comes to payday lenders, but they should still be able to help.

I hope that answers your questions, Bert.

One more thing to know: There are a million credit counselors out there. Be careful about just picking up the phone and calling anyone at random, because some of these people are not on the up and up. It’s an industry that’s really rife with rip-offs.

We have a relationship with a reputable credit counseling agency. You can go to MoneyTalksNews.com, go to our Solutions Center, then click on Debt Help and we’ll hook you up.

You can also go to the NFCC, the National Foundation for Credit Counseling. They have a locator that can help you find quality counseling. The NFCC has been around for a very long time, and you can trust their recommendations.

Now let’s conclude with our quote of the day. This one comes to us from Oscar Wilde, the famous playwright, poet and author.

“Time is a waste of money.”

Interesting way to put it, Oscar. Have a profitable day and meet me right here next time!

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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Stacy Johnson
Stacy Johnson @moneytalksnews
I'm the founder of Money Talks News and have spent the last 40+ years in the personal finance trenches. I'm a CPA, author of a few books and multiple Emmy recipient. I'm ... More

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