Help With Debt: Credit Counseling

Got a debt dilemma? Get a pro on your side.

For the next several months, I’m doing TV news stories and writing blog entries that are designed to help you find extra money in your budget to help you pay off debt. But this story is specifically addressed to people who aren’t ready to embark on a debt-destroying mission because their debt is currently destroying them. It’s an excerpt regarding credit counseling from my latest book, Life or Debt 2010. In subsequent entries, I’ll be talking about two other methods of dealing with debt: debt settlement and bankruptcy.

Credit Counseling

If you’ve got creditors hounding you and you’re hopelessly behind on your payments, get your debts under control by enlisting professional help. One way to do it to go to a credit counseling agency, either in person, on the phone or online. There’s no shortage of them out there, and many will help you for free.

Open your yellow pages or look online for “credit and debt counseling” and you’ll see lots of companies that seem to be falling all over themselves to bring you back from the brink of debt destruction. They’re all over the TV and radio these days. Many wave the nonprofit banner like a flag and promise to reduce your interest rates, or even get the amount you owe cut in half. Some claim their services are free, or nearly free. How do these things work?

Credit counselors typically help by putting you on a Debt Management Program, also known as a DMP. When you participate in a DMP, the agency is essentially getting between you and the people you owe, most often credit card companies. They contact your creditors and attempt to negotiate lower interest rates, get penalty fees waived and arrive at a monthly payment you can actually afford. Then you send one check to the counseling agency for that amount every month and they divide the money among your creditors. It’s not a quick fix: a typical DMP lasts three to five years.

Most counseling agencies give free advice, but if you end up in a DMP, you’ll typically pay a small monthly fee to get it set up (0-$50) and monthly fees (5-10% of your debt payment, but normally capped at $25-$50.)

But here’s something important to know: the monthly fees these agencies collect aren’t what keeps them alive. They’re also getting paid by the banks whose accounts they’re collecting. In years past the percentage they got was 10 to 12 percent of the debt. In recent years, that percentage has declined considerably, and some major banks have started handing out grants instead. But nonetheless, the banking industry is really the primary support for the credit counseling industry, and a primary way many credit counselors tap that cash is to put you on a DMP.

Since credit counselors make a large part of their income from putting you on a debt management program, they obviously might have a powerful incentive to do so. Sometimes bankruptcy may be a better option than a DMP, but credit counselors don’t do bankruptcies and don’t get paid for steering you in that direction. What if could manage to pay your debts without a DMP? Again, the agency doesn’t get paid.

Does that mean you should shun credit counselors? Not at all: there are plenty of agencies that will dispense honest, objective advice, including advice that ultimately doesn’t pay them. But what you want to avoid is getting hooked up with a so-called DMP mill. These are companies who typically do a lot of advertising and put virtually everybody on a debt management program simply because that’s how they make money. If your problem includes bills that don’t qualify for a DMP (like a mortgage or car loan, for example) they won’t help you with them. They also won’t offer any type of budget counseling. And if your situation is so tenuous that bankruptcy should be a consideration? You’ll never hear that suggestion from them, since again, they won’t make money if you do that.

For the DMP mill, it only takes a few minutes to sign you up for a program, and if you ultimately have to file bankruptcy anyway, who cares? They collected their money for as long as you were able to stick with the program. Making these guys even more insidious is the fact that they can be hidden behind a nonprofit shield.

The way a credit counseling agency should work is that they should counsel you regarding all your debts and present you with all your options before you do anything that you can’t undo. In other words, they should counsel you, not slam you into the only fix that makes money for them. If you can pay your debts without going on a DMP, they should tell you. If you need to think about bankruptcy, they should tell you that.

And by the way, a quality credit counseling organization will also help with other non-debt, credit-related issues. Here’s a story I did on that: How To Find Financial Help.

Specific Recommendations

In my experience, Consumer Credit Counseling Service is a good option. They’ve been around for nearly 60 years, have offices in nearly every city, offer independent accreditation and counselor certification, and provide an approach as close to holistic and objective as you can find. That’s not to say that there aren’t other good agencies, or that all CCCS offices are perfect. But if I’m going to make a blanket recommendation for a national organization, that’s the one. (Full disclosure: Various Consumer Credit Counseling Service offices sponsor my news reports in some of the cities where I’m on the air. But that’s because I approached them, not the other way around. Long before they began sponsoring me, I referred viewers to them.)

Consumer Credit Counseling Service agencies, as well as some others, belong to an organization called NFCC, or the National Foundation of Credit Counselors. Another national organization that represents credit counseling agencies is called the Association of Independent Credit Counseling Agencies, or AICCCA. I personally know many members of AICCCA and in my experience, they’re also normally credible and well-intentioned. You can find NFCC members near you their Find a Counselor Now page. You can find AICCCA members near you by using their state by state lists.

Are there other quality agencies that don’t belong to either of these organizations? Most definitely. Dues for NFCC and AICCCA aren’t cheap, and I also personally know agencies that don’t feel like paying them, yet still maintain high standards.

But wherever you go, ask questions before you agree to anything. For example, the percentage of clients they have on debt management programs. If the answer is nearly all, that’s bad. If the answer is about half, that’s good, because it shows they’re trying to help their clients with other methods. Ask about fees. Ask about the amount of budget counseling you’re going to get, because if you’re not going to get any tools to help change the way you deal with debt, you could end up in the same place farther down the road. Ask if their counselors have any training, and if they do, whether they have any certification. Ask if the agency is accredited by an independent organization. Ask what their help will mean to your credit history. (The correct answer here is, “There’s no way to tell for sure. Could even be negative. But consider the alternative.” The wrong answer is, “No problem, buddy! Sign here!”). Check the BBB or other online sources for complaints. And talk to more than one agency. When you talk to several, it’s easy to distinguish between the ones that come across like used-car salesmen vs. ones that sound like what you’re really looking for: an objective counselor.

Bottom line? If you can’t see your way out of a debt disaster, definitely get help. And don’t be ashamed or embarrassed to do so. More than a million people every year file personal bankruptcy. Millions more do nothing to try to help themselves and end up with ruined credit and lots of sleepless nights. Going to a pro for help may not be your proudest moment, but there are definitely a lot worse things that could happen.

Next time we’ll be covering another heavily-advertised debt solution: debt settlement.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
These 13 States Tax Social Security Income
These 13 States Tax Social Security Income

Uncle Sam is not the only one looking for a piece of your retirement income. Is your state on this list?

30 Purchases That Will Start Saving You Money Immediately
30 Purchases That Will Start Saving You Money Immediately

Sometimes, you’ve got to spend to save. These canny deals are a good bet for savings.

The 10 Best and 10 Worst States for Raising a Family in 2020
The 10 Best and 10 Worst States for Raising a Family in 2020

There are trade-offs no matter where you live. However, some states have big advantages when it comes to choosing a home for your family.

10 Common Expenses That Have Skyrocketed for Seniors
10 Common Expenses That Have Skyrocketed for Seniors

Retirees must stretch their dollars further and further these days — no thanks to these costs.

12 Ways Retirees Can Earn Passive Income
12 Ways Retirees Can Earn Passive Income

These simple ways of earning income without a lot of active, ongoing effort can stretch your retirement dollars.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

15 Products You Need — Even If You Didn’t Know It
15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

10 Things You Should Never Do With Bleach
10 Things You Should Never Do With Bleach

Does the pandemic have you reaching for bleach more than ever before? Learn the ins and outs of using this powerful disinfectant.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.