Millions of Americans are drowning in credit card debt. If you are among them, you might benefit from expert help.
A credit counselor can stand between you and your creditors, negotiate lower rates and payments on your behalf, and help craft a plan to pay down debts.
Unfortunately, the debt settlement industry is poorly regulated and rife with problems. Some clients find that debt settlement companies do not help them find relief, and can actually put them in an even worse financial situation.
To avoid such trouble, the safest bet is to get financial counseling from nonprofit agencies such as:
- The National Foundation for Credit Counseling, a national network of agencies vetted and accredited by the Council on Accreditation.
- The Financial Counseling Association of America represents independent nonprofit providers of credit counseling and debt help. These agencies also are accredited by the Council on Accreditation.
- 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 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 counseling agencies can’t reduce the balance — the total amount — of debt you owe.
The NFCC explains in detail how to assess a debt-management plan and a credit counselor. Make sure any debt-management plan includes all your debts, 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 you high fees. For example, GreenPath Financial Wellness, an NFCC member, charges a one-time setup fee of zero to $50, and monthly fees averaging $36 for a debt management plan.
The company should not give you the runaround when you inquire about costs. And agencies should waive fees if you have serious financial hardship.
2. Free information
There should be no charge for learning the key details about an agency and its debt management plans. Also, don’t surrender personal details to get information about a company or its fees.
3. A variety of services
Stay away from businesses that only offer debt services. Also, steer clear of companies offering debt-reduction plans. Trustworthy agencies offer a variety of types of help, including:
- Budget counseling, to help with managing money.
- Credit and debt counseling, to explain and help improve your credit score, dispute credit report errors, and analyze and prioritize debt payments.
- Debt management plans, which arrange for you to make a single payment to the agency, which in turn pays your creditors and helps you get debts under control and paid off.
- Other types of help. Nonprofits also may offer bankruptcy help, student loan counseling, housing counseling, and counseling on getting a mortgage or reverse mortgage.
4. Education and professionalism
Trustworthy nonprofits typically offer free public classes and workshops on financial topics. “The absence of any true education offered to the general public is a red flag,” says the NFCC.
Back away if you’re feeling pressure or hearing unrealistic promises. Avoid “counselors” who push products, come on like salespeople or offer a one-size-fits-all solution.
5. A thorough interview
An agency should take an hour or more to get the details of your financial picture, including income and debts. Be prepared to bring copies of bills and credit card and bank statements.
6. A willingness to help with all debts
You should be able to get help whether your debts are large or small. If a company requires a minimum amount of debt to help you, flee.
7. A clean record of service
Learn whether your state attorney general’s office has received complaints about the agency. Find your state AG’s contact information at the website of the National Association of Attorneys General.
Find additional consumer protection resources in your state at the USA.gov website.
Have you used a debt management plan to get a start fresh? Share your experience in a comment below or on our Facebook page.