According to NerdWallet, at the end of 2014, the average credit card debt for households that carried a balance was a whopping $15,609. That’s enough to bust nearly any household budget. Fortunately, for those needing help, it’s both easy to find and free.
Here’s this week’s 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 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, other than ending the relationship, was moving back in with her parents until she could regain her financial footing.
I offered another option: credit counseling. It’s something I know a lot about. I’ve covered these services for decades and have sat on the board of two agencies.
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.
Credit counseling worked for my friend because 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 more than four years to complete. Today she’s debt-free, has a nice, fat savings account, and 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 both friendly and knowledgeable.
While the advice is typically free, DMPs aren’t. 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 in which unscrupulous agencies jammed everyone who called into a DMP, 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 because those options didn’t create income for the agency, they weren’t offered.
We’ve partnered with Consolidated Credit Counseling Service, a credit counseling agency I’ve known personally for many years. You can find them on this page of our Solutions Center and can reach them either online or on the phone.
But whether you use our partner or choose another agency, it’s important to know how to find a reputable credit counseling agency. Here’s what to look for.
Quality counseling 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 salesperson.
- Spend resources educating people, not on lots of TV advertising. Our partner, Consolidated Credit Counseling, does do some advertising, but my experience suggests most quality agencies put what little money they have into helping people, not into 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 DMP. A good agency will listen to what you need, rather than pushing prepackaged solutions.
- Help anyone who asks. Reputable groups don’t place restrictions on whom 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.
If you have a problem, make a call
The worst mistake you can make is letting fear and anxiety cause you to freeze like a deer in the headlights. If you’ve got a problem and need help, make a call. Not soon, right now. It will cost you nothing, will definitely make you feel better and could very well change your life for the better.
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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 way more questions than I have time to answer.
I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.
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