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How To Choose A Credit Counselor

Smiling couple with laptopThe Federal Trade Commission’s website recently had a good article on choosing a credit counselor. Of course, the basic question is do you need a credit counselor? If you’re living from paycheck to paycheck, being called by debt collectors and can’t seem to create and stick to a decent budget, the answer is probably “yes.” But how do you choose a credit counselor?

Choose an organization and not a company

The best credit counseling entities are not private companies. They are nonprofit organizations that offer their services locally, online or via the telephone – either free or for very low monthly fees. In comparison, companies that offer credit counseling are often profit motivated and sometimes will charge big fees upfront.

Where to find a reputable credit counselor

The best type of credit counselor is one that offers in-person counseling. You can often find this at nearby universities, credit unions, housing authorities, and branches of the US Cooperative Extension Service.

A word of warning

Be aware that just because the organization is a non-profit, this doesn’t guarantee that it offers its services at no charge or that it’s even legitimate. In fact, some credit counseling companies charge high fees, which they may try to hide or they might try to “sell” you an expensive debt consolidation loan.

What good credit counseling agencies will do

A decent credit-counseling agency will provide you with information about managing your money and debts. It will help you create a budget and provide free educational materials and workshops. A reputable credit counseling organization’s counselors are trained and certified in consumer credit, debt management, money and budgeting. They will talk with you about your entire financial situation and then help you develop a personalized plan or debt management plan (DMP) to help with your money problems.

Check with your state’s attorney general’s office

You should first create a list of agencies you might want to work with and then check out them with your state’s attorney general’s office and your local Better Business Bureau. Your attorney general’s office should be able to tell you if any of the organizations on your list have had complaints filed against them. Also, the United States Trustee Program has a list of credit counseling agencies that have been approved to do pre–bankruptcy counsel and one of them could be a good choice.

Questions to ask

You should do interviews with each of your candidates. When you sit down them, there are some questions you should definitely ask. For example ask what services they offer, do they offer information and will they help you in developing a plan to avoid problems in the future. You should also ask about their fees and what you could do if you can’t afford to pay them. You should ask if you will have a formal written statement or contract and about the qualifications of its counselors. Finally, you might ask what assurances there are that your information will be kept confidential and secure?

How the agency will work with your creditors

The agency you select should first contact your creditors and attempt to negotiate reductions in your interest rates and the dismissal of any fees you have been charged. Following this, your debt counselor will help you create your debt management plan and then submit it to your creditors. If they all accept it, you then will deposit money with the agency every month. It will use this money to pay your unsecured debts like student loan debts, credit card bills and medical bills, per the payment schedule you developed with your counselor and your creditors

The downsides of credit counseling

Before you leap into credit counseling, it’s important to understand that there are some downsides. For example, you will be required to give up all of your credit cards and not sign up for a new revolving credit until you’ve completed your plan. You’ll probably be required to stay on a fairly strict budget for the five years it will take you to finish your plan. And you’ll have to make your monthly payments every month without fail or your plan could be voided and you would end up in even worse shape than before you signed up for counseling.

Click here to read the entire FTC article on credit counseling